Blog

The criterion of per capita income can be considered a good indicator of regional variations in economic development. As economic development is essentially a process the increase in per capita income should not appear as a temporary or short-sustained phenomenon.

Of course, the increase in per capita income can be considered as the primary criterion for measuring the extent of development in an area. There are other sub-criteria which have to be considered along with the primary criterion.

The nature of the distribution of income in the society is an integral part of the development. The secondary objectives like level of consumption, level of employment, and diversification against concentration of the economy are also important.

Role of Entrepreneurship in Economic Development

Economic development is not to be considered as an end in itself but as a means to an end. Economic development is concerned, ultimately, with the achievement of better nourishment, better education, better health, better living conditions, and an expanded range of opportunities in work and leisure for the people.

Therefore, a rise in real per capita income is a relevant criterion to judge the extent of development in a region as it is a means for the attainment of desired standards in nourishment, education, health, and living conditions.

The entrepreneur is the key to the creation of new enterprises that energize the economy and rejuvenate the established enterprises that make up the economic structure. The following are the role of entrepreneurship in economic development:

1. Capital Formation
2. Improvement in Per Capita Income
3. Improvement in Living Standards
4. Economic Independence
5. Backward and Forward Linkages
6. Generation of Employment
7. Harnessing Locally Available Resources and Entrepreneurship
8. Balanced Regional Growth
9. Reducing Unrest and Social Tension amongst Youth
10. Innovations in Enterprises.

Capital Formation

Entrepreneurs mobilize the idle savings of the public through the issues of industrial securities. Investment of public savings in industry results in productive utilization of national resources. Rate of capital formation increases which is essential for rapid economic growth. Thus, an entrepreneur is the creator of wealth.

Improvement in Per Capita Income

Entrepreneurs locate and exploit opportunities. They convert talent and idle resources like land, labor, and capital into national income and wealth in the form of goods and services. They help to increase the net national product and per capita income in the country, which are important yardsticks for measuring economic growth.

Improvement in Living Standards

Entrepreneurs set up industries that remove the scarcity of essential commodities and introduce new products. Production of goods on a mass scale and manufacture of handicrafts, etc., in the small scale sector, help to improve the standard of life of the common man. These offer goods at lower costs and increase variety in consumption.

Economic Independence

Entrepreneurship is essential for national self-reliance. Industrialists help to manufacture indigenous substitutes of hitherto imported products thereby reducing dependence on foreign countries. Businessmen also export goods and services on a large scale and thereby earn the scarce foreign exchange for the country.

Such import substitution and export promotion help to ensure the economic independence of the country without which political independence has little meaning.

Backward and Forward Linkages

An entrepreneur initiates change which has a chain reaction. The setting up of an enterprise has several backward and forward linkages. For example, the establishment of a steel plant generates several ancillary units and expands the demand for iron ore, coal, etc. These are backward linkages.

By increasing the supply of steel, the plant facilitates the growth of machine building, tube making, utensil manufacturing, and other units. Entrepreneurs create an atmosphere of enthusiasm and convey a sense of purpose. They give an organization its momentum. Entrepreneurial behavior is critical to the long-term vitality of every economy. The practice of entrepreneurship is as important to established firms as it is to new ones.

Generation of Employment

During the seventh five-year plan, the unemployment backlog reached around 44 million people. Today, unemployment exceeds 1985 levels due to an emphasis on modernization, automation, and technological advancement since the 1980s.

Government structural changes in the 1990s are shifting industries towards capital-intensive models. This trend reduces job opportunities in organized sectors, favoring growth in informal sectors. Entrepreneurship training can mitigate unemployment by encouraging self-employment.

Harnessing Locally Available Resources and Entrepreneurship

India is considered to be very rich in natural resources. In spite of about five decades of planned development, a large number of states have remained economically backward. A few large-scale industries started by entrepreneurs from outside the state in an economically backward area may help as models of pioneering efforts.

But ultimately the real strength of industrialization in backward areas depends upon the involvement of local entrepreneurship in such activities: Increased activities of local entrepreneurs will also result in making. Use of abundantly available local resources.

Balanced Regional Growth

Medium and large-scale industries can only be started with huge investment which is either available with well-established industrial houses or need to be drawn from public exchequer.

Also, the promotion of such industries does not help in reducing disparities in income and wealth. On the other hand, an important advantage of small-scale enterprises is that they can be started with meager financial ‘resources and little or no previous experience or entrepreneurial background.

Reducing Unrest and Social Tension amongst Youth

Many problems associated with youth unrest and social tensions are rightly considered to be due to youth not being engaged in productive work. In the changing environment where we are faced with the problem of recession in wage employment opportunities, an alternative to a wage career is the only viable option.

The country is required to divert the youth with latent entrepreneurial traits from wage careers to self-employment careers. Such an alternate path through entrepreneurship could help the country in defusing social tension and unrest among youth.

Innovations in Enterprises

Business enterprises need to be innovative for their survival and better performance. It is believed that smaller firms have relatively higher necessity and capability to innovate. The smaller firms do not face the constraints imposed by large investments in existing technology.

Thus they are both free and compelled to innovate: The National Science Foundation, an organization in the USA found that small companies produce four times more innovations per research dollar than do bigger companies. Entrepreneurship development programs are aimed at accelerating the pace of small firms’ growth in India. An increased number of small firms is expected to result in more innovations and make the Indian industry compete in the international market.

FAQs Section