4.1.

MEANING OF RURAL ENTERPRISES

Rural Enterprise means a group of people with common economic interests (Le., farmers,
fisherfolk, agro-processors, tour guides, craft makers, etc.), who have formed a legally
recognised organisation to carry out business activities. Rural enterprises refer to establishing
industrial and business units in rural areas. It is entrepreneurship emerging in rural areas. Rural
entrepreneur are those who carry out entrepreneurial activities in rural areas. Rural areas are
characterized by unemployment and poverty.

Indian growth story is directly linked with the rural entrepreneurship development. Farming
community is now quite aware about the value of their resources and their usefulness. Similarly,
agro based industries are emerging in the rural areas giving a powerful base for rural enterprises
Diversification into non-agricultural uses of available resources such as catering for tourin
blacksmithing, carpentry, spinning etc, as well as diversification into activities other than those
solely related to agricultural usage, for example, the use of resources other than land such as
water, woodlands, buildings, available skills and local features, all fit into rural enterprises.

The enterprises combinations of these resources are, for example tourism, sport and recreation
facilities, professional and technical training, retailing and wholesaling, industrial applications
(engineering, crafts), servicing (consultancy), value added (products from meg, milk, wood, etc.)
and the possibility of off-farm work. Equally entrepreneurial, are new uses of land that enable a
reduction in the intensity of agricultural production, for example, organic production.

In simple words, enterprises emerging in rural areas is called rural enterprises. In other
words, establishing industries in rural areas refers to rural enterprises. This means runi
enterprises is synonymous to rural industrialisation.

Here, it seems pertinent to define rural industry and rural industrialisation. According to the
Khadi and Village Industries Commission (KVIC), "village industry or rural industry means any
industry located in rural area, population of which does not exceed 10,000 or such other
figure which produces any goods or renders any services with or without use of power and in
which the fixed capital investment per head of an artisan or a worker does not exceed a thousand
Rupees"

The Government of India has recently modified the definition of village industry as any industry
located in rural area, village or town with a population of 20,000 and below investment of 3
crores in plant & machinery. With this wider definition of village industries, a total of 41 new
village industries have been added to the category of village industries.

Importance

Rural entrepreneurs play a vital role in the overall economic development of the country. The
growth and development of rural industries facilitate self-employment, results in wider dispersal
of economic and industrial activities and helps in the maximum utilization of locally available
raw materials and labour.
Anil Murthy V, M. Com, MBA, KSET (COM & MNGT) (Ph.D.)
Assistant professor, Dept of Commerce & Management
Rural enterprises play a vital role in the overall economic development of the country. The
growth and development of rural industries facilitate self-employment, results in wider dispersal
of economic and industrial activities and helps in the maximum utilization of locally available
raw materials and labour. Following are some of the important role which rural industries play
in ameliorating the socio-economic conditions of the rural people in particular and the country
in general.

1. Proper utilization of local resources: Rural industries help in the proper utilisation of local
resources like raw materials and labour for productive purposes and thus increases productivity.
They can also mobilize rural savings which help in increase of rural funds.

2. Employment generation: Rural industries create large-scale employment opportunities for

the rural people. The basic problem of large-scale unemployment and underemployment of rural
India can be effectively tackled through rural industrialisation.

3. Prevents rural exodus: Lack of employment opportunities, heavy population pressure and
poverty forced the rural people to move to urban areas for livelihood. It creates rural urban
imbalance. Under these circumstances, rural industries help in reducing disparities in income
between rural and urban people and acts as a potential source of gainful employment. This
prevents rural people to migrate to urban areas.

4. Fosters economic development: Rural industrialisation fosters economic development of

rural areas. This curbs rural urban migration on the one hand and also reduces disproportionate
growth of towns and cities, growth of slums, social tensions and environmental pollution etc. on
the other.

5. Earnings of foreign exchange: Rural industries play an important role in increasing the
foreign exchange earnings of the country through export of their produce.

6. Producers goods of consumers' choice: Rural industries including village and cottage
industries produce goods of individual consumers' choice and taste. Jewelry, sarees, artistic
products are produced to cater to the needs of different consumers according to their taste, design
and choice.

7. Entrepreneurial development: Rural industries promote entrepreneurial development in the

rural sector. It encourages young and promising entrepreneurs to develop and carry out
entrepreneurial activities in the rural sector which finally facilitate the development of the rural
areas.

Need for Rural Entrepreneurship

The reasons for the rural entrepreneurship are discussed as under: As the rural industries are
labour-intensive, they tend to have a high possibility of generating employment, which acts as a

Anil Murthy V, M. Com, MBA, KSET (COM & MNGT) (Ph.D.)

Assistant professor, Dept of Commerce & Management
corrective measure to a number of problems causing due to unemployment stemming in the run
areas.

1. Rural industries have a comparatively high potential of generating income, which reduces the
disparities amidst income earned by people living in urban and rural areas.

2. Rural entrepreneurship stimulates the dissemination of economic activities in the village areas,
which ultimately results in balanced regional development.

3. It does not just protect but also promotes the art, culture and creativity, ie. the varied heritage
of that particular region.

4. When industries are set up in rural areas, it advances economic development which reduces
migration of the villagers to urban areas.

5. Curtails unequal growth in the urban areas, decreases the development of slums, environment
pollution etc.

When industries which are environment friendly are established in rural areas, it results in
development without causing harm to nature and biodiversity.

Rural enterprises are certainly act as a key figure in economic progress of India. They play a vital
role in converting developing country into developed nation. In today's global market a country's
economic policy environment must always be favorable for an organization to achieve efficiency.
Economic policy of a country should also enable entrepreneurs to provide magical touch to an
organization irrespective of public, private or joint sector in achieving innovativeness, speed,
flexibility and also strong sense of self-determination. Rural enterprises, however, is the best
answer for removal of rural poverty in India. Hence government should stress and emphasise
more on integrated rural development programmes. Also, majority of the rural youths do not
think of entrepreneurship as a career option.

4.2 CLASSIFICATION OF MSME PROGRESS AND PROBLEMS OF MSME

The Micro Small & Medium Enterprises (MSMEs) are defined in India under the MSMED Act
2006 on the basis of capital investment made in plant and machinery, excluding investments in
land and building. [As per 2006 definition, Manufacturing units having investment below 25 lakh
(2.5 mn) were termed Micro, those between 25 lakh and ₹ 5 crore (50 mn) termed as Small and
from 5 crore to ₹ 10 crore (100 mn) as Medium. Similarly, for Service units, corresponding
investment thresholds were up to Rs 10 lakh (1 mn) Micro, between 10 lakh and 2 crore (20 mn)
Small and between 2 crore to 5 crore (50 mn) Medium]In India, MSMEs contribute nearly 8%
of the country's GDP, around 45% of the manufacturing output, and approximately 40% of the
country's exports. It won't be wrong to refer them as the 'Backbone of the country."

The Government of India has introduced MSME or Micro, Small, and Medium Enterprises in
agreement with Micro, Small and Medium Enterprises Development (MSMED) Act of 2006.
Anil Murthy V, M. Com, MBA, KSET (COM & MNGT) (Ph.D.)
Assistant professor, Dept of Commerce & Management
These enterprises primarily engaged in the production, manufacturing, processing, or
preservation of goods and commodities.

MSMEs are an important sector for the Indian economy and have contributed immensely to the
country's socio-economic development. It not only generates employment opportunities but also
works hand-in-hand towards the development of the nation's backward and rural areas.
According to the annual report by the Government (2020-21), there are around 6,08,41,245
MSMEs in India.

In India, MSMEs contribute nearly 8% of the country's GDP, around 45% of the manufacturing
output, and approximately 40% of the country's exports. It won't be wrong to refer them as the
'Backbone of the country. The Government of India has introduced MSME or Micro, Small, and
Medium Enterprises in agreement with Micro, Small and Medium Enterprises Development
(MSMED) Act of 2006. These enterprises primarily engaged in the production, manufacturing,
processing, or preservation of goods and commodities.

MSMEs are an important sector for the Indian economy and have contributed immensely to the
country's socio-economic development. It not only generates employment opportunities but also
works hand-in-hand towards the development of the nation's backward and rural areas.
According to the annual report by the Government (2018-19), there are around 6,08,41,245
MSMEs in India.

Classification of MSMEs

A proposal was made to redefine MSMEs by the Micro, Small and Medium Enterprises
Development (Amendment) Bill, 2018, to classify them as manufacturing or service-providing
enterprises, based on their annual turnover.

Highlights of new MSMEs

Anil Murthy V, M. Com, MBA, KSET (COM & MNGT) (Ph.D.)

Assistant professor, Dept of Commerce & Management
Atma Nirbhar Bharat Abhiyan' or the Self-Reliant India Scheme of 2020 by the Government of
India has given a new definition for MSMEs.

Following are a few highlighting features of new MSMEs

1. A provision of Collateral Free Loans to MSMEs

2. An arrangement of loans to MSMEs worth of 3 lac crores

3. An offer for MSMEs to get a Moratorium period of 12 months

4. Consideration of Manufacturing and Service MSMEs as the same entities

5. MSM is a granted a repayment Tenure of 48 months

6. MSMEs are assured a 100% Credit Guarantee

7. Reclassification of MSMEs will benefit approximately 45 Lac units.

Following are some of the essential elements of MSMEs-

1. MSMEs work for the welfare of the workers and artisans. They help them by giving
employment and by providing loans and other services.

2. MSMEs provide credit limit or funding support to banks.

3. They promote the development of entrepreneurship as well as upgradation of skills by

launching specialized training centers for the same.

4. They support the upgrading of developmental technology, infrastructure development, and the
modernisation of the sector as a whole.

5. MSMEs are known to provide reasonable assistance for improved access to the domestic as
well as export markets.

6. They also offer modern testing facilities and quality certification services.

7. Following the recent trends, MSMEs now support product development, design innovation,
intervention, and packaging.

4.2.2 Progress of MSMEs in India

The Indian MSME sector is the backbone of the national economic structure and has
unremittingly acted as the bulwark for the Indian economy, providing it resilience to ward off
global economic shocks and adversities. With around 63.4 million units throughout the
geographical expanse of the country, MSMEs contribute around 6.11% of the manufacturing
Anil Murthy V, M. Com, MBA, KSET (COM & MNGT) (Ph.D.)
Assistant professor, Dept of Commerce & Management
GDP and 24.63% of the GDP from service activities as well as 33.4% of India's manufacturing
output. They have been able to provide employment to around 120 million persons and contribute
around 45% of the overall exports from India.

The sector has consistently maintained a growth rate of over 10%. About 20% of the MSMEs are
based out of rural areas, which indicates the deployment of significant rural workforce in the
MSME sector and is an exhibit to the importance of these enterprises in promoting sustainable
and inclusive development as well as generating large scale enterprises. India stands to become
one of the biggest growth engines in the world, where Micro, Small and Medium Enterprises
(MSMEs) play a crucial role. MSMEs are the largest providers of employment after agriculture.
As per the 73d National Sample Survey (NSS) conducted by National Sample Survey Office,
Ministry of Statistics & Programme Implementation, during the period 2015-16, the estimated
number of workers in unincorporated non-agricultural MSMEs in the country that engaged in
different economic activities was 11.10 crores. The number of MSMEs in India increased by a
CAGR of 19.0% from 2019 to 2020. In FY21, the loan disbursals to MSMEs stood at 9.5 trillion
(USS 128.06 billion), a 40% increase compared with 6.8 trillion (USS 91.66 billion) in FY20.

India has raised its share in the global economy from 2.6 per cent in 2014 to 3.2 per cent in 2017,
according to the World Development Indicator database. Adding to that, the International
Monetary Fund October 2018 database has also projected Indian economy to be the fastest
growing in 2018-19 and 2019-20, growing at a rate of 7.4 per cent in 2019, which is faster
thanChina. The driving forces behind this growth are urbanization, changing consumer trends
and the rising MSME sector.

The MSME segment needs to seize the opportunities in order to have a robust infrastructure in
place. This will require strong efforts by the government to fill in the gaps and bypass the
challenges. This can only be made possible if the framework for growth has more and more
domestic participation, apart from the growth in IT infrastructure, innovations in business and
adaptation of better MSME policies. There must be a regulatory compliance approach and an
incentive-based approach for all the stakeholders.

Anil Murthy V, M. Com, MBA, KSET (COM & MNGT) (Ph.D.)

Assistant professor, Dept of Commerce & Management
Progress of MSMES

• MSMEs employ about 12 crore people, making them the second-largest source of jobs
after agriculture.
• It contributes about 6.11% of GDP from manufacturing and 24.63% of GDP from service
activities, with about 45 lakh units across the country.
• As India strives to become a $5 trillion economy, the MSME ministry aims to raise its
contribution to GDP by up to 50% by 2025.
• They account for approximately 45% of India's total exports.
• MSMEs promote inclusive growth by creating job opportunities, especially for people
from lower socioeconomic backgrounds in rural areas.
• MSMEs in tier-2 and tier-3 cities contribute to the creation of opportunities for people to
use banking services and goods, which can result in the final accounting of MSMEs'
contribution to the economy.
• MSMEs encourage creativity by assisting aspiring entrepreneurs in developing
innovative goods, thereby increasing market competitiveness and fuelling growth.

The new wave of MSME needs certain measures to lead the growth in the economy. Some of
these are given below.
1. Increase in the share of MSME contribution to GDP.

2. Generate employment in the current MSME sector, more than the current MSME workforce
of 11.10 crores across the different MSME sectors.

Growth in exports, and MSME contributions in public and private industry sectors. Interestingly,
India ranks at 58th position among 140 economies on the World Economic Forum's (WEF's)

Anil Murthy V, M. Com, MBA, KSET (COM & MNGT) (Ph.D.)

Assistant professor, Dept of Commerce & Management
latest Global Competitiveness Report, moving up five places from 2017 ratings. It scored on the
innovation level, yet the penetration of technology and digitisation are still non-uniform. Despite
reforms and initiatives that the government is taking, MSME growth has slowed down. As a
member of an industry association, I believe that the rules and regulations for MSMEs should be
mellowed down. The procedures and processes should be simplified so that a not-so-educated
person can also conduct the business without any problems.

4.2.3 Problems

Multiple Constraints faced by MSMEs, their impact on MSMEs growth Although the MSME
sector has been growing at a faster rate than the overall industrial sector, MSMEs experience
multiple constraints that threaten to derail the sector's growth trajectory. Some of major that
MSMEs face are highlighted.

1. Inadequate market linkages: MSMEs tend to have poor market access, except in the case of
cluster-linked and ancillary MSMEs that have natural linkages with large enterprises. The non-
clustered MSMEs are fragmented, and as a result, are unable to organize in order to reduce the
procurement cost from large enterprises or streamline the output supply chain. In the absence of
adequate market linkages, any demand disruption in the supply chain can severely impact on
their operations because the enterprise capital of these industries tends to be locked in illiquid
inventory and receivables

2. Lack of infrastructure: Limited access to infrastructure facilities such as power, water and
roads increases operational costs for MSMEs and makes their dealings uncompetitive.
Inadequate access to support infrastructure discourages these industrial units from adopting new
technologies where ever available. In addition, poor infrastructure forces small and medium
businesses to operate in selected geographical areas, by increasing the demand for natural
resources in that region.

3. Inadequate finance: This is the biggest challenge before the MSMEs. These enterprises
consider it as one of the biggest constraints in growth. A study on the MSME sector also suggests
that the multiple growth constraints like those mentioned above can be largely linked to
inadequate access to finance. The Report of Working Group on Rehabilitation of Sick MSMEs
by RBI also finds lack of adequate and timely access to working capital finance is one of the key
reasons for sickness in the sector. The 2007 MSME Census indicated that only 5 per cent of
enterprises in the sector had access to some form of formal finance, while over 92 per cent of the
units lacked access to any form of institutional finance. Studies on financing pattern in the sector
and the MSME census suggest that MSMEs prefer self-financing, which not just includes the
savings of the entrepreneurs, but also the finance availed from friends, family and relatives.

4. Lack of managerial competence: Micro and small enterprises in particular largely comprise
first-generation entrepreneurs, who have had a limited structured training on resource planning,
capital management and labor management. As a result, lack of managerial competence often
shows in poor book-keeping and a limited knowledge of formal financial institutions, which
further inhibits their growth process.
Anil Murthy V, M. Com, MBA, KSET (COM & MNGT) (Ph.D.)
Assistant professor, Dept of Commerce & Management
5. Obsolete technology: These industries do possess the obsolete and outdated technology.
While industries such as automotive, forging, software development sector require advanced
technologies in operations, the majority of the small and medium enterprises do not have that
kind of technological edge. A low technological base results in low productivity, which makes
these enterprises uncompetitive. These enterprises too have limited awareness about new
technologies, or the technology financing schemes.

Below is a list of some of the major challenges faced by MSMEs that have a significant impact
on their growth prospects:

(1) Financial issues: In the Indian economy, access to finance has always been an issue for
smaller firms and businesses. This is a major hindrance for businesses as well as the MSME
sector. However, the most disturbing fact about it is that only 16% of SMEs get access to timely
finance, resulting in small and medium firms being forced to rely on their own resources. It is
not just small firms that face this problem, but larger firms do as well because even those bigger
players face significant difficulties in accessing cheaper credit from formal banks.

(2) Regulatory issues: Several regulatory issues have been identified over time, including
problems like tax compliance and changes to labour laws which have ended up costing the
MSME sector dearly. In an attempt to make this sector more competitive among others, certain
labour reforms were attempted some years back. Still, they failed to make any dent in improving
things for MSMEs despite making them more competitive than larger firms. As a result, it has
become very difficult for MSMEs to comply with these regulations and register for tax
compliance, which has resulted in many operating on low capital or even shutting shops.

(3) Infrastructure: In India, the infrastructure sector is extremely important because we are often
referred to as the 'world's back-office because so many works in this sector are carried out
overseas. Applications such as eCommerce and BPO have created more jobs in low-wage
countries like India.

(4) Low productivity: MSMEs are not necessarily very productive, but they perform certain
tasks that emit more value than they produce. Retailers sell consumer goods to end-users at
relatively lower prices. In fact, MSMEs may be very productive only when it comes to being
cost-efficient and are capable of creating high volume at very low costs. But given that their
production is on a small scale with low margins, low productivity can put them at a disadvantage,
especially when compared with larger firms.

(5) Lack of innovation: Indian MSMEs are not very innovative, and the majority of the products
that they produce are based on outdated technologies. There is a severe lack of entrepreneurs in
this sector, which has prevented it from adopting new technologies and tools which have brought
about significant changes in other sectors like eCommerce and call centers, etc. As a result,
MSMEs have had to struggle with outdated technology as well as low levels of productivity,
especially when compared with larger firms.

Anil Murthy V, M. Com, MBA, KSET (COM & MNGT) (Ph.D.)

Assistant professor, Dept of Commerce & Management
 (6) Technical changes: There has been no dearth of technical changes over time, and most
industries have undergone some form of change in order to remain competitive. As a result,
Indian MSMEs have had to deal with some very important changes which have affected their
growth potential. At first, there was a change in the ownership right of land, which has made the
sector more prone to mismanagement and, with it, a fall in productivity.

(7) Competition: Due to various factors, such as the rise of eCommerce and the advent of
globalisation, bigger firms have forced MSMEs out of their markets. However, this is not new
because MSMEs were facing competition from year one, but they could fight it off successfully
compared to professional firms. In fact, MSMEs continue to face competition in many areas,
including agricultural machinery, garments, and tourism.

(8) Skills: When it comes to skills, Indian MSMEs are far behind their counterparts in other
countries because they depend heavily on the help of informal workers, who are not paid well
and lack the technical skills which can help enhance productivity. As a result, smaller firms are
forced to take up jobs that require low levels of skill and expertise, which further affects their
growth prospects in the long term.

(9) Lack of professionalism: A majority of Indian MSMEs lack professionalism despite being
vital for larger industries' growth. As a result, they are highly prone to corruption and abuse of
power, which has a huge impact on the productivity of their businesses.

(10) Lack of standardized policies: There are very few MSME policies in India. As a result,
there is no consistency when it comes to MSME development as well as entrepreneurship
promotion programmes. However, positive progress has been made in Delhi over the years, but
this needs to be done on a national level so that Indian firms can become more competitive across
the world for global companies and investors.

Policy support in the above area will make MSMEs as engines of growth for New India, after all
a resilient and healthy MSMEs sector is essential for achieving the goal of self-reliant India.

4.3 KHADI AND VILLAGE INDUSTRIES

Khadi and Village industries:

In the wake of industrialisation and mechanism, Khadi and Village Ventures as a
financially suitable alternative for the rural poor who can set up these ventures practically
with no or low capital investments. With the liberalization and globalization of the economy
and the removal of quantitative restrictions, the smaller units of the Khadi and village
industry sector are facing stiff competition. A large portion of India's population lives in the
villages where illiteracy still prevails and large industry is not in a position to absorb the work
force from rural areas. In view of this, it is necessary to create more employment opportunities
in villages by utilizing local resources and skills so that rural people can get work in the villages
itself.

Anil Murthy V, M. Com, MBA, KSET (COM & MNGT) (Ph.D.)

Assistant professor, Dept of Commerce & Management
This would also reduce the migration of unemployed rural youths to urban areas in search of
jobs. Only a few of them get absorbed in urban areas and this constant flow of people to urban
areas has put the existing civic infrastructure under severe pressure. As a result, the number of
jhuggi-jhopri clusters and slum dwellers in urban areas is steadily increasing. The Khadi and
village industry sector has got the potential to create new jobs in rural areas. During the Ninth
Plan period, new policy measures were provided to the sector for enhancing production and
employment.

Objectives of Khadi and village industries in India

1. To generate sustainable employment ensuring minimum wages to 10,000 artisans per district
directly.

2. To forge linkages with DRDAs, Banks and other agencies to integrate the scheme into the
overall employment generation programme for the districts;

3. To ensure that employment opportunities in adequate number is created for the weaker
sections, particularly SC, ST and women; and

4. To provide marketing support for the products made under the programme in order to sustain
the production activities.

5. To attempt at generation of additional employment for 7000 to 10,000 persons in an identified

district and 1000 persons in a block in non farming sector in rural areas of the country. The tenure
of the programme is 3 years.

6. To help to improve regional imbalance in the industrial growth of the country.

7. To help upliftment of the people living below the poverty line.

8. To upgrade the skills of the rural artisans in order to transform them into an economic asset
and thereby ensure better living standards.

9. To make coordinated efforts for pooling together the resources of KVIC, DRDA, financial
institutions, public organizations, etc. engaged in rural developments for successful
implementation of the programme.

Khadi and Village Industries Commission

Khadi and Village Industries Commission (KVIC) plans, promotes, organises, and
implements programmes for the development of Khadi and other village industries in rural
areas, nationwide. KVIC also helps in building up the reserve of raw materials for supply
to producers. The commission focuses on the creation of common service facilities for the
processing of raw materials, such as semi-finished goods. KVIC has also helped in the creation
of employment in the Khadi industry.
Anil Murthy V, M. Com, MBA, KSET (COM & MNGT) (Ph.D.)
Assistant professor, Dept of Commerce & Management
Objectives of KVIC

The broad objectives of the Khadi Village and Industries Commission encompassing self-
reliance and sustainability are:

1. To boost employment in the country.

2. To promote the promotion and sale of Khadi articles

3. To cater to the self-reliance doctrine of the country by empowering underprivileged and rural
sections of the society.

Functions of KVIC

The following are the functions of Khadi Village and Industries Commission:

[Link] plans, promotes, organizes, and implements programmes for the development of Khadi and
Village Industries (KVI).
2. It coordinates with multiple agencies that are engaged in rural development for several
initiatives w.r.t Khadi and village industries in rural areas.
3. It maintains a reserve of raw materials that can be further promoted in the supply. chain.

4. It aids in creating common service facilities that help in processing of raw materials

5. It aids the marketing of KVI products through artisans and other avenues.

6. It creates linkages with multiple marketing agencies for the promotion and sale of KVI
products.

7. It encourages and promotes research and development in the KVI sector.

8. It brings solutions to the problems associated with the KVI products by promoting research
study and enhancing competitive capacity.

9. It also helps in providing financial assistance to the individuals and institutions related to
the Khadi and village industries.

10. It enforces guidelines to comply with the product standards to eliminate the production of
ingenuine products.

11. It is empowered to bring projects, programmes, schemes in relation to Khadi and village
industries' development.

Features of KVIC
Anil Murthy V, M. Com, MBA, KSET (COM & MNGT) (Ph.D.)
Assistant professor, Dept of Commerce & Management
 • Interest Rate: Depends on the applicant's profile and business requirements
• Loans offered are directed and governed by PMEGP under which is below-mentioned
criteria for specific MSMEs:
• Loan Amount for Manufacturing Sector: Maximum 50 lakh
• Loan Amount for Business and Service Sector: Maximum 20 lakh
• Funding Pattern: Mentioned below in PMEGP Scheme
• Repayment Tenure: From 3 years-7 years, including 6 months of the moratorium period
• Income Capping: No criteria
• Margin: Lock-in for 3 years in separate account later adjusted with KVIC loan

KVIC Schemes

The following are the schemes covered under the Khadi and Village Industries Commission
(KVIC).

• Prime Minister's Employment Generation Programme (PMEGP)

• Market Promotion Development Assistance (MPDA)
• Interest Subsidy Eligibility Certificate (ISEC)
• Work shed Scheme for Khadi Artisans
• Strengthening the infrastructure of existing weak Khadi institutions and assistance for
marketing infrastructure
• Khadi Reform and Development Programme (KRDP)
• Scheme of Fund for Regeneration of Traditional Industries (SFURTI)
• Honey Mission

Progress of KVIC

The development of Khadi and Village Industries can be asked in the form of Essay in UPSC
Mains. Hence, aspirants can take help from the latest report of KVIC, "Two Years' Progress
Report (2016-2018)' for important facts.

Some important highlights taken from the KVIC report regarding the Khadi and Village
industries and the commission are:

1. The Prime Minister of India, Narendra, Modi quotes, "Earlier it was Khadi for the nation,
Khadi for fashion, now it is becoming Khadi for transformation."

2. The Mission Solar Charkha has empowered women by bringing self-esteem and self- reliance
among them.

3. The significant transformation both in Khadi production and Khadi sales are mentioned from
the figures below:
Anil Murthy V, M. Com, MBA, KSET (COM & MNGT) (Ph.D.)
Assistant professor, Dept of Commerce & Management
 • The average Khadi production has grown from 6.52 per cent in 2004-14 to 26.43 per cent
in 2015-18.
• The average Khadi sales grew from 6.62 per cent in 2004-14 to 31 per cent in 2015-18.
• The number of Khadi sales outlets funded for modernisations tands at 728 between 2015-
2018. There were no outlets reported between 2004-2014.
• 400 computers, hardware and software have been supplied to Khadi institutions for
digitalisation between 2015 and 2018.

4. Khaadi Haat was set up for the first time in 2018 in New Delhi.

5. Digital India Pavilion was established by KVIC in India International Trade Fair.

6. A larger steel charkha at East Champaran was inaugurated in April 2018 to commemorate the
visit of Mahatma Gandhi.

7. KVIC gifted Gandhi Charkha to Uganda which was unveiled on the international day of non-
violence. (Read about important national and international dates for UPSC from the linked
article.)

8. KVIC envisages an artisan-centric vision for the transformation in Khadi and Village
industries.

9. The five organs of the KVIC are mentioned in the report:

• Organisation
• Community
• Village Industry
• Market
• Heritage
In order to attract younger generation, the KVIC is holding exhibitions, seminars, lectures in over
120 universities and colleges throughout the country so as to disseminate knowledge of KVI
products.

To face the challenge of globalisation. KVIC has introduced a number of new products ranges
like Khadi denim jeans, Sarvodaya brand for export purpose. The KVIC is also training its sales
staff in order to attune them to the new market-context being created by globalisation. For
ensuring quality for KVI products, the commission is approaching the Bureau of Indian
Standards and Directorate of Marketing and Inspection of Ministry of Agriculture.

Moreover, to create a market-niche for eco-friendly pure and bio-degradable natural products,
the KVIC has introduced two new brands viz., "Sarvodaya" and "Khadi". The KVIC has decided
to participate actively in international trade exhibitions being organised by ITΡΟ, with the
primary objective of popularising its products in international markets.

The KVIC has worked out a plan to supply KVI products in a big way to Central and State
Government organisations. Plans are afoot to set up show windows in Indian Missions abroad as
Anil Murthy V, M. Com, MBA, KSET (COM & MNGT) (Ph.D.)
Assistant professor, Dept of Commerce & Management
well as to open Khadi Gramodyog Bhawans in Australia, Germany, U.K., U.S.A., Canada, Dubai
and Singapore.

Challenges for Khadi and Village Industry

In spite of the huge spending by the government of India on Khadi sector, there had been a decline
in the production and sales of Khadi and the employment generated by the sector in the last few
decades. Moreover, the huge amount spent for the economic empowerment of the poor artisans
is not reaching their hands.

The statistics provided by the annual reports of Ministry of Small and Medium Enterprises
(MSME) showed that a rise in the plan and non-plan amount spent on Khadi sector during 1994-
95 to 2014-15. But, the Comptroller and Auditor General of India (CAG) Audit report on KVIC
also reveals that KVIC is ineffective in utilizing the plan and non-plan funds for the Khadi
sector promotion, clearly indicating the wastage of public monies
According to the regulations of the MSME, only KVIC and KVIC certified institutions are
allowed to produce khadi, creating significant entry barriers. The certification process of Khadi
is imposed by the government to protect the industry is not market friendly and does not cater
to the interests and tastes of the customers.

Many weaving units, however, emerged only for getting KVIC rebates and other benefits but
have not produced any Khadi product. At the same time, this has also resulted in many piracy
problems associated with Khadi industry like producing spurious products in the name of
Khadi through unofficial channels.

Khadi fabrics are available mostly in KVIC certified stores only, restricting the availability of
Khadi products to the consumers. In addition to this, in the Khadi retail outlets, the working times
are the government office timings in India, from 10 am to
5 pm. When the whole marketing is going e-commerce line 24×7 these days, the stereotypes in
Khadi sector are not doing anything good for the marketing of Khadi products. The marketing of
Khadi is mainly done by Khadi institutions.

Khadi sector is an over-regulated one in India, where the entire production process, sales,
distribution, and marketing is majorly regulated by the government through KVIC. The
restrictive practices adopted by the government implemented through KVIC, have resulted in
making the Khadi industry ineffective, inefficient along with failing to deliver economic
empowerment to the poor artisans working in the sector.

Way Forward

The Khadi and village industries programme hold great potential for generating gainful
employment opportunities for the rural poor, arresting migration of rural unskilled workers to
urban areas and for promoting the strategy of sustainable development. It can also be available
and effective social safety net to enable the poor to ward off the adverse impacts of structural

Anil Murthy V, M. Com, MBA, KSET (COM & MNGT) (Ph.D.)

Assistant professor, Dept of Commerce & Management
adjustment and economic reforms on their wellbeing. However, this potential cannot be realized
without addressing some basic challenges faced by the Khadi sector.

The entry barriers in the market need to be removed and the fabric is made available to private
retail stores, thereby the public is given a wider number of choices to opt. It is important to add
here, that the opening up of Khadi retailing to private players such as Raymond and Fabindia are
good initiatives in this regard. However, at present, both require the prior permission of KVIC to
retail khadi. This, is counterproductive and should be done away with.

Similarly, marketing techniques are also needed for the promotion of Khadi rather than relying
on outdated techniques. Here, the spinners and weavers should be allowed to work with private
textile designers without the approval of KVIC. This will free up the labour market and will
prevent leakages to middle men. The increase in the number of purveyors of Khadi will also
prevent price monopolization, and will increase the supply available. This will also prevent
piracy problems associated with the Khadi industry such as the production of fake products being
sold as Khadi through unofficial channels.

Export of Khadi should also be looked upon for balancing international trade and commerce. At
last Khadi is indigenous to our country and it should be our duty to preserve, promote and
propagate this worldwide.

Extra information

MEANING

Rural Enterprise means a group of people with common economic interests (i.e., farmers,
fisherfolk, agro-processors, tour guides, craft makers, etc.), who have formed a legally
recognized organization to carry out business activities.

IMPORTANCE OF RURAL ENTERPRISES

Classification of MSMEs

Size of the Enterprise Investment and Annual Turnover

Micro Investment less than Rs. 1 crore Turnover less than Rs. 5 crore

Anil Murthy V, M. Com, MBA, KSET (COM & MNGT) (Ph.D.)

Assistant professor, Dept of Commerce & Management
Small Investment less than Rs. 10 crore Turnover up to Rs. 50 crore

Medium Investment less than Rs. 20 crore Turnover up to Rs. 100 crore

PROBLEMS OF MSME

1. Financial assistance – The most common problem that all small-scale businesses have faced,
and are still facing is of credit. MSMEs struggle to obtain financial assistance due to several
factors like absence of collateral, lengthy paperwork, and lack of trust in loan repayment
capabilities. These obstacles remain despite the government’s conscious effort to provide easy
credit line to MSMEs. To help your business overcome this, IndusInd Bank offers hassle-free
MSME loans at attractive interest rates. Entrepreneurs can enjoy doorstep banking, customized
product, comfortable repayment tenure, and much more.
2. Marketing – Increasing marketability of productsis a difficult task not just for MSMEs, but
for large-scale businesses as well. Inconsistence and sporadic marketing efforts yield no results.
When it comes to small-scale businesses, the lack of resources – time, money, and skilled
employees make it impossible to increase visibility and generate quality leads. To help MSMEs
overcome this, the NSIC (National Small Industries Corporation (NSIC) under the Ministry of
MSME organizes frequent workshops to train enterprises in online and offline marketing of their
products and services.
3. Technology – Majority of the MSMEs in India operate on stale and obsolete technology which
obstructs them from keeping up with the new age world. This is despite the fact, that India is said
to have the third largest pool of technologically trained manpower. Adoption of new technology
and training employees with these technological upgradations is not only difficult, but also costly
– especially for manufacturing businesses where the scope is not just in terms of software, but
also in terms of production units. While lack of access to IT education is partly responsible for
the technological gap, the biggest factor is lack of awareness which reduces willingness to
investment in advanced tech solutions.
4. Upskilling – Skilled employees are essential for growth of businesses. Multi-national
companies (MNCs) understand this and keep on-the-job training at the centre of their functioning.
Unfortunately, small-scale enterprises fail in upskilling their manpower, unknowingly taking a
hit.
5. Business expertise – While entrepreneurs may have subject matter expertise relevant to their
goods and services, they might lack the business acumen needed to run an enterprise smoothly.
These include funding & financing, tracking sales, managing input & output costs, etc.
6. Procurement of raw material – The prices of raw materials have increased manifold,
especially since the beginning of the Covid-19 pandemic. For MSMEs in the manufacturing
sector, the procurement of raw material is extremely important to continue operations. However,
Anil Murthy V, M. Com, MBA, KSET (COM & MNGT) (Ph.D.)
Assistant professor, Dept of Commerce & Management
lack of bulk orders, credit facilities and transportation of raw material make the procurement
tedious. To eliminate these limitations, the NSIC runs a ‘Raw Material Assistance Scheme’
which helps small businesses by financing the purchase of raw material – both indigenous and
imported.
7. Hiring – MSMEs struggle to hire skilled and competent manpower. Lack of name recognition
of the company reduces the talent pool from which MSMEs can hire employees as there are fewer
responses to job postings by small-scale businesses. Even after finding the right candidate from
this small pool, MSMEs lose the right candidate due to inability to offer competitive salary, job
security and career development opportunities similar to larger organizations.
8. Innovation – The rate of changes is accelerating rapidly. The role of creativity and innovation
has increased in this change process for survival. Businesses are becoming knowledge-based and
their success & survival is directly related to their creativity, innovation, discovery and
inventiveness. MSMEs will have to learn and imbibe the process of innovation in their day to
day working to remain competitive.
9. Stiff competition from giant businesses – Indian MSMEs are finding it difficult to sell their
products in the domestic and international markets because of increasing competition. Small-
scale enterprises face a tough competition from their global counterparts due to liberalisation, as
well as from domestic giants due to their immense scale of operation. While the government does
run protective schemes for such small-scale enterprises, the competition remains one-sided by
and large.
10. Overall management – Inadequate management skills hamper business expansion and often
cause non-competitiveness of small enterprises. A successful business must be able to grow
workforce, cater to diverse customer needs, manage inventory, deal with new competitors, keep
the supply chain running and sustain the company’s culture. More often than not, entrepreneurs
undermine the importance of effective management and face numerous hurdles when the
business expands at the later stage. To help your enterprise manage its finances batter, IndusInd
Bank Current Accounts offers multiple money-managing solutions like dynamic cash deposit
limits, smart cash management services and grouping of related accounts.

The Khadi and Village Industries Commission (KVIC) is a statutory body formed in April
1957 by the Government of India, under the Act of Parliament, 'Khadi and Village Industries
Commission Act of 1956'. It is an apex organisation under the Ministry of Micro, Small and
Medium Enterprises, with regard to khadi and village industries within India, which seeks to -
"plan, promote, facilitate, organise and assist in the establishment and development of khadi and
village industries in the rural areas in coordination with other agencies engaged in rural
development wherever necessary.". [1]

In April 1957, it took over the work of former All India Khadi and Village Industries Board. Its
[2]

head office is in Mumbai, whereas its six zonal offices in Delhi, Bhopal, Bengaluru, Kolkata,
Mumbai and Guwahati. Other than its zonal offices, it has offices in 28 states for the
implementation of its various programmes

Important terms
Khadi
Anil Murthy V, M. Com, MBA, KSET (COM & MNGT) (Ph.D.)
Assistant professor, Dept of Commerce & Management
"The livery of freedom" – Mahatma Gandhi [3]

Khadi, (pronounced Khādī) refers to hand-spun and hand-woven cloth. The raw materials may
be cotton, silk, or wool, which are spun into threads on a charkha (a traditional spinning
implement).
Khadi was launched in 1920 as a political weapon in the Swadeshi movement of Mahatma
Gandhi.
Khadi is sourced from different parts of India, depending upon its raw materials - While the silk
variety is sourced from West Bengal, Bihar, Odisha and North Eastern states, the cotton variety
comes from Andhra Pradesh, Uttar Pradesh, Bihar and West Bengal. Khadi poly is spun in
Gujarat and Rajasthan while Haryana, Himachal Pradesh and Jammu and Kashmir Karnataka are
known for the woolen variety.
There are a wide range of Khadi personal care products manufactured in Uttarakhand Khadi
Products - Handmade and Natural
Trademark
Khadi and Village Industries Commission holds the exclusive rights to use the trademark ''Khadi''
and "Khadi India". The National Internet Exchange of India Domain Dispute Policy (INDRP)
Arbitration Tribunal in New Delhi rejected the contention of a private entity that "Khadi" is a
generic word. [4][5][6]

Village Industry
Any Industry that is located within a rural area, where the Fixed Capital Investment per Artisan
(weaver) does not exceed Rupees One hundred thousand The Fixed Capital Investment can be
[7]

changed by the Government of India whenever it so requires.

Objectives of the Commission
The commission has three main objectives which guide its functioning. These are -
[8]

• The Social Objective - Providing employment in rural areas

• The Economic Objective - Providing saleable articles
• The Wider Objective - Creating self-reliance amongst people and building up a strong
rural community spirit.
The commission seeks to achieve these objectives by implementing and monitoring various
schemes and programs.
Implementation of Schemes and Programs[edit]
The process of Implementation of schemes and programs starts at the Ministry of Micro, Small
and Medium Enterprises which is the administrative head of the programs. The Ministry receives
funds from the Government of India, and routes these to the Khadi and Village Industries
Commission for the implementation of programs and schemes related to Khadi and Village
Industries.
[9]

The Khadi and Village Industries Commission then uses these funds to implement its programs
either directly - Through its 29 state offices, by directly funding Khadi and Village institutions
[10]

and co-operatives, or indirectly through 33 Khadi and Village Industries Boards, which are
[11]

statutory bodies formed by the state governments within India, set up for the purpose of

Anil Murthy V, M. Com, MBA, KSET (COM & MNGT) (Ph.D.)

Assistant professor, Dept of Commerce & Management
promoting Khadi and Village Industries in their respective states. The Khadi and Village
Industries Boards, in turn, fund Khadi and Village Institutions/Co-operatives/Entrepreneus.
At present the developmental programmes of the commission are executed through, 5,600
registered institutions, 30,138 Cooperative societies and about ~95 lakh people.
[12] [13]

Schemes and Programs of the Commission[edit]

Prime Ministers Employment Generation Program (PMEGP)[edit]

Launched on 14,August 2008
The Prime Minister's Employment Generation Programme (PMEGP) the result of the merger of
two schemes - Prime Minister's Rojgar Yojana (PMRY) and The Rural Employment Generation
Programme (REGP).
Rural beneficiaries receive up to a 25% margin compensation in rural areas and 15% in urban
areas for the general category and 35% in rural areas and 25% in urban areas for SCs, STs, OBCs,
minorities and women among other special categories. [14]

Anil Murthy V, M. Com, MBA, KSET (COM & MNGT) (Ph.D.)

Assistant professor, Dept of Commerce & Management