The entrepreneurship has been identified by many economists as a vital force in the process of industrialization in particular and economic development in general. Economic development essentially means a change. But, at the same time, it is very difficult to define precisely the phrase economic development’. One should realize that the term economic development does not convey the idea of total development of the society. It only focuses itself on one aspect and one dimension of general development. Economic development can be defined as a move towards even more efficient and differentiated methods of supplying people with the requirements for survival and improvement.
Many a time economic development is interpreted as synonymous with industrialization because it is viewed by the poor regions as a superior way of life. But economic development cannot be equated with industrialization. When economic development is analyzed with the yard stick of extent of industrialization, it implicitly undermines the importance of primary sector like agriculture. The high dependency ratio of people on the primary sector is not the cause of underdevelopment but the consequence of it. These two sectors are complementary to each other in the development process. Moreover, economic development is much more than industrialization, it is an upward movement of the’ entire social system. Economic development includes increase in productivity, social and economic equalization, improved institutions, and attitudes, and a rationally coordinated system of policy measures and removal of undesirable conditions and systems that perpetuated a state of underdevelopment.
It appears that economic development involves something more than economic growth and it includes both growth and change. Moreover, economic development is not only a quantitative phenomenon but has qualitative dimensions too.
The criterion of per capita income can be considered as a good indicator of regional variations in economic development. As the 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 distribution of income in the society is an integral part of the development. The secondary objectives like level of consumption, level of employment, diversification against concentration of the economy are also important.
Economic development is not to be considered as an end in itself, but is 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. Entrepreneurs initiate and sustain the process of economic development in the following ways:
- 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 the talent and idle resources like land, labour and capital into national income and wealth in the form of goods and services. They help to increase 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 which remove scarcity of essential commodities and introduce new products. Production of goods on mass scale and manufacture of handicrafts, etc., in the small scale sector help to improve the standard of life of a 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. 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 such 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 an important to established firms as it is to new ones.
- Generation of Employment: At the beginning of seventh five year plan the backlog of unemployment was estimated to be around 44 million persons. At present, the number of unemployed in the country is far greater than what it was during 1985. Emphasis on modernization which usually results in automation, use of high technology, and technology up gradation initiated during 1980s and structural changes introduced by the Government during 1990’s are likely to give much rise to capital-intensive rather than labour intensive industry. It is feared that there will be very little additional job opportunities within the fold of organized public and private sectors. Most of the job opportunities in future are likely to be emerging from informal and unorganized sectors of economy. Entrepreneurship development training which helps in strengthening informal and unorganized sector is expected to motivate enterprising people to opt for self employment and entrepreneurial career. It will therefore, help in solving the problem of increasing unemployment to some extent.
- 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 economically backward areas may help as model 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, promotion of such industries does not help in reducing disparities of 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 tension is 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, alternative to wage career is the only viable option. The country is required to divert the youth with latent entrepreneurial traits from wage career to self-employment career. Such alternate path through entrepreneurship could help the country in defusing social tension and unrest amongst 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 investment in existing technology. Thus they are both free and compelled to innovate: The National Science Foundation, an organization in USA found that small companies produce four times more innovations per research dollar than do bigger companies. Entrepreneurship development programmes are aimed at accelerating the pace of small firms’ growth in India. Increased number of small firms is expected to result in more innovations and make the Indian industry compete in international market.
- Initiating change in the structure of business and society: The role of entrepreneurship in economic development involves initiating change in the Structure of business and society. One theory of economic growth depicts innovation as the key, not only in developing new products, but also in stimulating investment interest. The new Capital created expands the capacity for growth (supply side), and new spending utilizes the new capacity and output (demand side.) In spite of the importance of investment and innovation in the economic development of an area, there is still a lack of understanding of few factors which are as follows:
- The product-evolution process is the process through which innovation develops and Commercializes through entrepreneurial activity, which in turn stimulates economic Growth. It begins with knowledge in the base technology and ends with products or Services available in the marketplace.
- The critical point in the process is the intersection of knowledge and a recognized social need, called the iterative synthesis. This point often fails to evolve into a marketable Innovation. Most innovations introduced in the market are ordinary innovations, with little Uniqueness.
- Technological innovations refer to new products with significant technological Advancements.
- Breakthrough innovations mean the development of new products with some Technological change.
- Regardless of the level of uniqueness or technology, each innovation evolves into and develops towards commercialization through one of three mechanisms: the government, Entrepreneurship, or entrepreneurship. Entrepreneurship has assisted in revitalizing areas of the inner city. Individuals in inner-city areas can relate to the concept and see it as a possibility for changing their present situation.