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Bringing Academic Rigour to the Field of Entrepreneurship in India

Though India has a good number of Schumpeterian entrepreneurs who have made the country a frontrunner in information technology, the country also has a large number of micro and small enterprises which have not been growing much but account for about 90 per cent of total employment. Hence, from the policymaking perspective it is essential to figure out what needs to be done on one side to create more Schumpeterian entrepreneurs for more wealth creation, and on the other side to improve performance of non-entrepreneurial small businesses.

REVIEW OF INDUSTRY AND MANAGEMENTEconomic & Political Weekly EPW september 27, 200887Bringing Academic Rigour to the Field of Entrepreneurship in IndiaAbhijit BhattacharyaThough India has a good number of Schumpeterian entrepreneurs who have made the country a frontrunner in information technology, the country also has a large number of micro and small enterprises which have not been growing much but account for about 90 per cent of total employment. Hence, from the policymaking perspective it is essential to figure out what needs to be done on one side to create more Schumpeterian entrepreneurs for more wealth creation, and on the other side to improve performance of non-entrepreneurial small businesses.As the new generation of entrepreneurs, inspired by the likes of Bill Gates, Steve Jobs and Narayana Murthy, continue to redraw the economic landscape of nations, the dramatic growth of academic interest in innovation and new venture creation over the last two decades has helped entrepre-neurship to emerge as an academic domain on its own. The cross-disciplinary field is attracting attention of different domain-experts who have been making important contributions from their own disciplinary perspectives to its advancement. Unfortu-nately, entrepreneurship is yet to find a strong independent foothold in mainstream academia in India. Though the debate over the definitions of an entrepreneur or entrepreneurship is not yet conclusive, in today’s innovation-focused scenario the Schumpeterian concept of entrepreneurship appears to be quite appropriate for getting the right perspective. For Joseph A Schumpeter (1934), the entrepreneur always tries to carry out new combinations of means of production and this function of the entrepreneur is central to economic development of a nation. New entrepreneurial combinations destroy the equilibrium in the economy and create new equilibrium and the entrepreneur is seen as the prime endogenous cause of develop-ment over a period. If viewed from this angle, the population of entrepreneurial businesses in India or for that matter, anywhere else, is only a subset of all new businesses and they are distin-guished by their disruptioncreating growth potential over time. In contrast to the entrepreneurial firms, the non-entrepreneurial firms comprising the absolute majority of small businesses1 in India, offer only “me-too” products and services and their growth potential is severely constrained by the existing demand-supply gaps and lack of innovativeness. Unlike in the regulated economy of the past when economics of shortage provided the guarantee of survival to these businesses, in an open economy with very high rate of technology and product obsolescence, many new firms now may find their businesses obsolete even before the first sale is made. This has made opportunity identification a key area of research in the field of entrepreneurship. As per the Global Entrepreneurship Monitor (GEM), an inter-national consortium of four reputed institutions, only 33 per cent of the total entrepreneurial activity (TEA)2 in India can be classified as improvement-driven opportunity recognition or opportunity-TEA (Table 1, p 88). Opportunity-TEA includes only those where individuals have decided to forgo their existing in-comeoptions and have been pulled into entrepreneurship by opportunity and desire to increase their income. Remaining portion of the TEA is comprised of those who are pushed to Abhijit Bhattacharya ( entrepreneurship and strategic management at the Institute of Management, Nirma University of Science & Technology, Ahmedabad.
REVIEW OF INDUSTRY AND MANAGEMENTseptember 27, 2008 EPW Economic & Political Weekly88entrepreneurship out of necessity. Therefore, it is no wonder that countries with high opportunity-TEA are also the countries with high-income where individuals are less desperate and have more opportunities to make a living. Though India scores pretty high on TEA, it is actually a country of default entrepreneurs where majority of the start-ups are initiated because of the lack of any opportunity to sustain livelihood for their owners. These businesses based on low technology, little or no innovation and me-too products normally do not have any growth potential. It can be safely assumed that most of the businesses in the unorganised sector providing 79 per cent of India’s total non- agricultural employment [Sundaram 2008] fall into this category. Although the necessity driven or non-entrepreneurial small firms do not have much growth potential, bearing in mind their contribution to India’s gross domestic product (GDP) and employ-ment, all small businesses independent of their types – entrepre-neurial or non-entrepreneurial, warrant serious research atten-tion from the academia. On one hand, to sustain high economic growth, the capabilities of the existing or potential business own-ers to identify and launch innovative business opportunities and maintain high level of performance have to be developed. On the other hand, the huge number of necessity enterprises employing bulk of our population and consuming substantial amount of public resources (provided partly through the priority sector lending schemes)3 also need to continuously improve their per-formance. To meet these dual challenges, answers have to be sought to the following questions: (a) what is to be done to increase the rate of innovative idea generation and conversion rate of such ideas to actual businesses; and (b) how perform-ance of the existing small firms, both entrepreneurial and non-entrepreneurial types, can be improved? This paper proceeds as follows. In Section 1, I discuss the research efforts made by scholars to understand the process of business identification and the emergence of new businesses. The second section is focused on how the entrepreneurship scholars internationally are trying to explain performance of small busi-nesses from different discipline-specific angles (or, perspectives) and their quest for integrative models. The third section discusses the state of entrepreneurship research in India and the way forward to establish entrepreneurship and small business manage-ment as a field of serious academic pursuit in the country. 1 OpportunityIdentificationNew venture creation process normally starts with the concep-tion of an idea that goes through various stages of refinement before metamorphosing into a real firm. The newborn firm then takes some more time to function as a fully established business. If successful in managing the growth process, the firm may even-tually acquire the status of a large corporation. There are different conceptual models of the venture forma-tion process. Some scholars have tried to model the creation as executions of a number of activities with different sequencing and variation in the amount of activities [Carter et al 1996; Reynolds and Miller 1992]. Gelderen et al (2005) mention four phases in the idea-to-launch process. In the first stage the inten-tion to start a business gets matured, while the second stage deals with the recognition of an opportunity. Resource mobilisation and launching of the organisation is the prime concern of yet another stage whereas, in the final or fourth stage the business starts exchanging with the market. Contradictory roles played by the same factors at different stages create a major problem for suchmultistage modelling of the idea evolution process. Anothermajor problem the scholars have to confront with for conducting empirical research on idea recognition and develop-ment is related to proper sampling and measurement. Opportunity identification is often a very subtle process and identifying people with ideas and that also, at similar stages, and monitor the growth of the ideas to actual business formation is a difficult issue to grapple with for conducting field research. Any retrospective data collection will have serious survivor as well as hindsight bias. Recently, scholars from America and Europe have made some collaborative research efforts to develop panel data to study the process of new venture emergence [Davidsson 2005]. Lichtenstein et al (2006) conducted an interesting longitudinal case study by constantly observing an entrepreneur throughout the idea development process and provided a process model of organisational emergence. More such studies covering different sectors, socio-economic conditions and entrepreneurs with diffe-rent skills and resources are needed for arriving at some genera-lisable conclusions. This can also ease, to some extent, the critical problem of availability of seed capital for idea development, a burning problem for innovative start-ups all over the world. Shane (2000) carried out a case-based investigation to figure out why some entrepreneurs were more successful than other in identifying an opportunity. Drawing on the Austrian school of economics that opportunity discovery was a function of the distri-bution of information in society he analysed eight actual business opportunities which entrepreneurs tried to grab by exploiting the three-dimensional printing process, a patented technology invented in 1989 at the Massachusetts Institute of Technology (MIT). He concluded that the ability to exploit an opportunity created by a new technology depended upon an entrepreneur’s prior knowl-edge. Shane’s findings have practical implications for policy-makers who spend large amount of resources, often indiscrimi-nately, to disseminate information about new technologies for creating business spin-offs. Venkataraman (2004) proposes very interesting hypotheses regarding government’s role to provide various intangibles of entrepreneurship like access to novel ideas, role models, safety nets, etc, besides supply of risk-capital for growth of innovative start-ups.Introduction of New KnowledgeFrom a long-term perspective, it is important that increasing number of entrepreneurs, launching millions of new firms every year all over the world, are able to identify innovative opportuni-ties and thus contribute to economic development of their coun-tries through introduction of new knowledge in the market. With Table 1: Share of Improvement-Driven Opportunity Recognition in Total Entrepreneurial Activity(in %)Russia IndiaBrazilChinaThailandIrelandUKUSItalyDenmark30 333944495659627081Source: GEM (2008).


REVIEW OF INDUSTRY AND MANAGEMENTseptember 27, 2008 EPW Economic & Political Weekly90reconfigure a firm’s resources and routines in the manner envi-sioned and deemed appropriate by its principal decision-maker(s)”. The intrinsic value of resources and their actual capabilities provide a deeper insight into why and how a particular bundle of resources allows a firm to perform better. But, instead of assign-ing absolute value to a stream of resources, it is also important to figure out what kind of resource combination will produce better result in a particular environment.2.2 Population Ecology Perspective The population ecology perspective describes the organisations’ failure to adjust to changes as a dominant organisational charac-teristic and extensively examines environmental impact on organisational performance. Describing the core concepts of optimisation and equilibrium used in economic theory as simpli-fications of a complex reality, Nelson and Winter (1982) preferred the concepts of decision rules and tendencies instead of maximi-sation and equilibrium. Drawing a parallel with Charles Darwin’s evolutionary theory, ecology model suggests that organisations which are well adapted to their environments will survive largely because the firms have some kind of genetic resources that allow them to search for behavioural pattern corresponding to the changed environment. Competitive process at the sector level selects the most successful routines that are suitable in a particular environment and weeds out the routines which are no longer suitable [Wennekers and Thurik 1999]. Thus by evaluating the environment the ecology perspective tries to predict perform-ance of small businesses and probability of their survival. Prior to the development of this perspective most entrepreneurship re-search assumed that success was fully determined by individual entrepreneurs. The application of environmental impact has challenged this thinking and increased understanding of the en-trepreneurial process [Amit et al 1993]. The major weakness of this perspective is the marginal role played by the entrepreneur in the new venture establishment process. But, if integrated with some other perspectives, the population ecology perspective can provide a rich theoretical framework in contrast to a simplistic biological metaphor. For application of this perspective, developing appropriate measure of environment is a critical issue. The research studies normally define environment as a multidimensional construct that have dimensions such as, demand, location, munificence, industry growth rate and hostility. Some studies also considered only one variable to measure environment such as, sector, industry dynamics or life cycle stage. 2.3 CognitivePerspectiveThe study of the personality of entrepreneurs probably is one of the most researched as well as contentious areas of investigation in the field of entrepreneurship. Entrepreneurs are perceived by many researchers as individuals with some special traits and abilities like achievement motivation, tolerance for ambiguity and risk-taking propensity [McClelland 1961]. It is argued that people with these characteristics are able to perceive, seize and then turned the existing opportunities into profitable ventures. In the 1960s and 1970s many research studies were focusing on these personal characteristics to explain the process of emergence and performance of start-ups. However, the findings were largely disappointing and no conclusive evidence was found to show that the personal traits of entrepreneurs were different from others and that it would be possible to draw a standard personality profile for them. The inadequacy of the psychological variables to explain behavioural patterns of entrepreneurs have shifted thefocus of many researchers to apply cognitive perspective to understand entrepreneurship. The cognitive perspective tries to explain how entrepreneurs use specific information to achieve higher performance. “By combining new information with entrepreneurial logic, entre-preneurs can develop hunches about how a new variable such as a technological breakthrough or an environmental change will impact a specific project long before it can be methodically and rationally explained” [Busenitz et al 2003]. The cognitive models of performance are dynamic in contrast to the static models of psychological traits and offer a more realistic framework incor-porating the vast complexities of entrepreneurial behaviour. The major problem the scholars have to grapple with while using the cognitive perspective to explain entrepreneurial per-formance is related to the dynamics of the cognition process as the relationship between the entrepreneur and the firm continu-ously changing with the growth of the business. In the beginning ofanew venture “all revolves around the entrepreneur. Its goals are his goals, its strategy his vision of its place in the world”[Mintzberg 1984: 534]. But as the firm grows the influ-ence of the entrepreneur on the firm is expected to diminish, whilethatofthe management team is expected to increase. Hence, thescholars using the cognitive perspective to understand entre-preneurship have to explain as to how the entrepreneurial cogni-tion becomes more structured and formal with the growth of a start-up that ultimately creates the environment for traditional managers to take charge of the growing business.2.4 EconomicPerspectiveThere is a sizeable literature linking entrepreneurship and eco-nomic growth. Some of the perspectives discussed above have their roots in economic thoughts. Entrepreneurial issues are dis-cussed in industrial economics, evolutionary economics, behavi-oural finance and so on. However, entrepreneurship – arguably the fourth factor of production, never received prime attention in mainstream economics dominated by concepts of perfect infor-mation and resource allocation. However, during the resurgent years of supply-side economics in the 1970s when issues like in-centives, market regulations and social rigidities became the topics of attention for many economists, some scholars felt the need to focus their attention on the firm-level processes through which decisions were taken and implemented. Rooted in institutionalism the transaction cost theory looked at how asset coordination capabilities of the entrepreneur within a firm substitute resource allocation through price, while Leiben-stein (1979) saw in entrepreneurship the solution to the problem of X-efficiency.4 The economists’ interests in entrepreneurship have witnessed further growth with the advent of Silicon Valley, as performance potential of hi-tech businesses have become the
REVIEW OF INDUSTRY AND MANAGEMENTEconomic & Political Weekly EPW september 27, 200891matter of prime concern for venture capitalists, angel investors, other stakeholders and policymakers. But, as mentioned by Wennekers and Thurik (1999), “it [still] remains veiled how ex-actly institutions and cultural factors frame the decisions of the millions of entrepreneurs in small firms”. 2.5 Strategic Adaptation PerspectiveA firm’s approach towards its key areas of operations is often un-derstood as its strategy and as per the strategic adaptation per-spective the entrepreneur-manager has the freedom to choose this approach from different alternatives under the same envi-ronmental contingencies. This perspective is mainly concerned with the impact of an individual firm’s strategy on its perform-ance in contrast to the mainstream economic studies that con-cede very little scope for performance impact because of the stra-tegic choice of an entrepreneur. The strategic adaptation perspec-tive considers that the environmental contingencies unilaterally do not determine what strategy to follow; entrepreneurs and/or managers have an option to select and align the organisation to the selected strategy. Even if there are no clearly spelt out mission-vision statements of a firm, which is often true for many small businesses, an ana-lyst can still reveal the firm’s strategic orientation by analysing its actions, behavioural pattern and resource allocation priorities. The strategy may frequently emerge through a series of incre-mental adjustments to the opportunities and threats confronted by the firm over time [Schindehutte and Morris 2001]. Many studies on entrepreneurial strategies have tried to examine the determinants of a firm’s capacity of strategic adaptation and availability of strategic options and develop measurement scales for adaptation. Entrepreneurial orientation has been found by many researchers as a very useful strategy, particularly in a dy-namic environment. It is defined as a multidimensional construct with following dimensions: proactiveness, innovativeness and risk-taking propensity. 2.6 CulturalPerspectiveCulture, which may be described as the shared values and beliefs of a society is an important contextual factor affecting the poten-tial or existing number of entrepreneurs and their performance in a given community, region or country. Hofestede (1980) indi-cates that cultural values may hold sway more powerfully in soci-eties that emphasise conformity rather than prize individuality. However, still there have been very few studies on impact of cul-ture on firms’ performance. In his research Davidsson (1995) shows that diverse entrepreneurial values predict regional rates of new business start-up in Sweden, though culturally Sweden appears to be a fairly homogeneous country. Ray (1994) suggests that perceived high penalty (defined in terms of shame) for fail-ure may make entrepreneurs more conservative in assessing prospects of a business opportunity. Thomas and Muller (2000) have used the concept of cultural distance to determine whether systematic variation exists between cultures ofUS and 15 other countries in terms of four entrepreneurial traits, namely innova-tiveness, locus of control, risk-taking and energy level (reflecting overall level of functioning in carrying out day to day activities), drawing a sample from university students.5 They found statisti-cally significant cultural distance in terms of all traits except in-novativeness. In a country like India with its huge diversity of cultures, castes, tribes, religious and linguistic groups cultural perspective can provide very valuable insight into understanding the differences in entrepreneurial activities among communities. The relationship between socio-cultural variables and entrepre-neurship, if understood, can be leveraged by the policymakers and other stakeholders for achieving greater success rate of programmes intended to promote entrepreneurial ventures and also improve performance of the existing firms among specific social groups. 2.7 Quest for an Integrative ModelI have discussed briefly how from different theoretical perspec-tives scholars have been trying to identify factors effecting new venture creation and performance of the small firms. However, fragmentation of research works on entrepreneurship has cre-ated the need for synthesis of various perspectives to get a fuller picture of the reality that is more than the simple sum of indivi-dual perspectives. For example, the risk-taking propensity of the entrepreneurs may not significantly correlate to performance but, its two-way and/or three-way interaction with environment and strategy may show significant impact. Knowledge of such interactions has important practical implications for many, be it individual entrepreneurs, firms or policymakers. Suppose an entrepreneurship development effort of an institution aims at improving one particular factor which is considered to have high impact on firms’ performance based on an empirical study that was conducted earlier from a single perspective. If interaction of this variable with another factor considered in another perspec-tive has high offsetting impact on the outcome, then the insignifi-cant outcome of the entrepreneurship development effort may not probably worth the expense. Some studies have tried to combine constructs such as strat-egy, environment, resources and motivation to come up with em-pirically validated model of fit which can be quite useful for en-trepreneurs, investors, trainers of potential entrepreneurs and policymakers alike [Wiklund 1998]. Naman and Slevin (1993) tested a normative model fit for small and medium high techno-logy manufacturing firms (based on data of hi-tech small and medium enterprises (SMEs) from Pennsylvania) that included variables like entrepreneurial style, organisational structure andmission strategy to determine a measure of firm’s fit with its environment.It may be too ambitious to expect a holistic and robust per-formance model encompassing all types of firms and situations. However, by integrating perspectives and applying analytic, empirical and experimental tools used in different perspectives, better guidance can be provided to small businesses for improving their performance.3 State of Entrepreneurship in IndiaThe government’s policy to develop the small-scale industry on a priority basis has been one of the prime reasons for drawing academic attention towards entrepreneurship in India. The central
REVIEW OF INDUSTRY AND MANAGEMENTseptember 27, 2008 EPW Economic & Political Weekly92and the state governments have put in place a wide range of sup-port measures to help the small business sector covering all types of ventures, from marginal to high growth firms. These measures include financial assistance, marketing and other consultancy support, entrepreneurship development training programmes (offered through a network of entrepreneurship development in-stitutes and centres) and others. Though there is no published data available on the number of entrepreneurial and non- entrepreneurial firms among the total population of small businesses, as per the estimates of the GEM the share of opportunity driven entrepreneurial activity in India constitutes only 33 per cent of the total entrepreneurial activity. It can also be inferred from the data on non-agricultural unorganised sector that the majority of the Indian small businesses fall into the non-entrepreneurial or me-too category which with declining productivity [Sundaram 2008] probably do not have any growth potential. The low pro-ductivity is hardly surprising if one considers the factthat the informal sector constitutes the predominant majority of the unorganised sector6 and the skills of the owners of informal sector businesses are normally self-learnt or acquired outside the formal school system [Anand 2004]. Even the addition of the relatively insignificant number of the small businesses from the organised sector does not make any qualitative difference to the overall non-entrepreneurial or marginalnatureofthe Indian small businesses. Therefore, despitethefactthatonly innovative or entrepreneurial firms fromthesmallbusiness segment have the potential to contribute to wealth creation and competitiveness in a technology- and knowledge-driven economy, the search for powerful predictive models to improve performance must also cover the huge majority of small businesses, mostly belonging to the unorganised or unincorpo-rated sector.Comprehensive quantitative models for performance measure-ment system have to incorporate factors that are found as signifi-cant contributors to performance from different perspectives dis-cussed in the previous section. To be robust any such model should have the power to indicate: (a) factors that can compen-sate for missing or weak variables to achieve better performance (say, factor combinations that can offset lack of entrepreneurship in a non-entrepreneurial firm); (b) combinations of factors which can produce superior performance; and (c) critical success and failure factors for new ventures. The models can be used for formulating policies, designing organisational environments and selecting cultures conducive for specific businesses. 3.1 Current ResearchDespite massive amount of public resources that have been regu-larly allocated to develop the Indian small business sector, a sur-vey of literature has failed to locate many publications on small business performance. Moreover, among the published literature there is hardly any publication that follows a theoretically sound framework. The conceptual basis for the selection of variables, their relative importance in a performance model, levels of anal-ysis, selection of controls and similar issues are generally not dis-cussed. The studies also do not use any publicly available data on small businesses (probably caused by acute scarcity of such data) and are mostly limited to sampling from a few geographical loca-tions. The researchers generally attempted to assess the direct impact of various factors on performance without using contin-gency or configurational framework. All surveyed studies turned out to be only cross sectional offering limited insight into causal effect of variables on performance. Brief reviews of a few publica-tions are presented here.Examining the competitiveness of the small and medium auto-component manufacturers R K Singh et al (2007) have tried to measure the impact of different strategies on firm performance and competitiveness in the context of challenges and opportuni-ties of the present environment. Though the researchers at-tempted to assess the impact of pressures and constraints on per-formance, apparently mediated through strategy, the statistical analysis does not examine any interaction effect. There is also a mix-up of the levels of focal units of observations. For exam-ple, constraints include “inadequate government support” which is a macro-level variable together with underutilisation of capacity, a firm-level indicator. Mitra et al(1999) have also studied the auto-component industry located in an industrial area (name not mentioned). They ran a cluster programme to analyse how performance-wise the units can be separated in termsoftheirrelationship with a few firm-level managerial attributes, though the crucial issue of performance variances remained unaddressed. Sharma et al (2005) raise the interesting issue of impact of selecting a specific performance management system (PMS) on SME performance. Firms based in three western Indian states from the hi-tech engineering, financing, packaging and distribu-tion sectors were examined. They concluded, “Use of PMS that includes every aspect of the business increases the overall per-formance of theSMEs” and “to survive and achieve success, SMEs need to understand the dynamics of performance in their indus-tries and develop the skills and capabilities that give them a com-petitive advantage”. But the million dollar question is, how the SMEs can really find out what kind of skills and capabilities should go into a PMS that can ensure competitive advantage or superior performance. Performance PotentialEven in the area of information technology (IT) which is regularly showcased by the political establishment and corporate leaders as proof of India’s entrepreneurial prowess, very few empirical studies on performance of small IT firms using a comprehensive theoretical framework have been found. In the initial years of the IT sector boom in India when the advantage of cheap labour was quite obvious, the industry never felt the need to investigate the influence of other factors and their collective impact on perform-ance. With unprecedented growth of theIT sector and gradual bottoming out of the employable surplus labour, empirical re-search is now urgently required to develop deeper insight into the performance dynamics of the IT firms. Emphasis on how to tap and train the large pool of English-speaking graduates [Arora et al 2001a] may not help beyond an extent. The firms and their investors have to figure out, for example, what may be the optimal configuration for a particular kind of IT operation in
REVIEW OF INDUSTRY AND MANAGEMENTEconomic & Political Weekly EPW september 27, 200893different clusters (say, Bangalore and Pune); what type of dynamic capabilities the entrepreneurial firms must build; how the capabilities of a firm differ from its local, national and inter-national competitors and so on. Comprehensive analysis of performance of IndianIT firms is of importance not only for individual entrepreneurs and small firms, but also for large corporations in the knowledge sector which are being increasingly forced to bring the issues related to corporate entrepreneurship to the centre stage of their strat-egy building. Though some excellent works have been pub-lished to show the advantages of IndianIT firms vis-à-vis their major competitors [Popkin and Iyengar 2007; Arora et al 2001b], or the correlations between dynamic capabilities and performance [Ethiraj et al 2005], hardly any research has been done to look at the performance potential of the Indian hi-tech firms showing two-way or three-way interactions of explanatory variables. 3.2 Action without Research Interestingly, despite the fact that very few research studies have been undertaken in India to understand the dynamics of the busi-ness opportunity identification process and performance of start-ups, a plethora of entrepreneurship development programmes are regularly offered in different parts of the country to potential and existing entrepreneurs and small business owners by various institutes and private consultants. Such programmes are very often sponsored by banks, various governmental departments, international organisations and others. Normally the programmes are designed around issues like achievement motivation, oppor-tunity identification and business plan preparation, though there is hardly any empirical evidence to suggest what are the critical success factors for opportunity identification and what factors ac-count for how much of variances in performance of start-ups. To ensure better outcome, ideally the entrepreneurship develop-ment initiatives should have been designed around actual relations between performance and its predictors derived from empirical studies conducted on a regular basis across industries, locations and social groups. The same logic also holds true for traditional credit evaluation systems used by the Indian financial institutions. Probably no other sector stands to benefit more from rigorous research on small business performance than the Indian commercial banks. The inability of the Indian banks to assess performance potential of small businesses, including the entrepreneurial firms with high growth potential is probably related to the prevalence of banking practices that are highly inappropriate for small busi-ness lending. The present approach of the Indian banks that nor-mally evaluate performance potential of small businesses using standard financial indicators like profitability and turnover and a few non-financial indicators is a reflection of all pervasive asset-based lending culture in the banking system. The life of a banker gets further complicated when he is asked to perform in a com-petitive market and also stick to the priority sector lending norms. The asset-based lending is not suitable for priority sectors lending to earn adequate return from those advances because of low or no quality of the collaterals. And it is absolutely not suitable for the knowledge-driven entrepreneurial ventures (because entre-preneurial value comes not from concrete assets, but from the entrepreneur’s vision that is saddled with ambiguities for an outside evaluator). Other Priority SectorsTo show better performance while fulfilling the priority sector targets, bankers have found an entrepreneurial solution to the problem (!):meet the target by increasing lending to “other pri-ority sector” segments like education, housing, etc, where asset-based lending is easier to practise or returns are better guaran-teed. It is not surprising that lending to small manufacturing businesses is gradually declining in the banks’ total priority sector lending from 58 per cent in 1969 to 39 per cent in 1992 to 24 per cent in 2004 [Rao et al 2006], though there has been continuous pressure from the Reserve Bank to increase the commercial banks’ commitment to priority sector lending from 33.33 per cent in 1979 to 40 per cent of aggregate bank advanc-es.7 Unless the real issue pertaining to evaluators’ actual diffi-culty to assess the performance potential of small businesses are researched, no amount of pressure tactic or sermonising can improve formal credit delivery to the Small Scale Industry (SSI) sector. Though many financial organisations now apply different models for performance prediction using both financial and non-financial indicators, these models were mostly developed in west-ern countries based on regular empirical studies conducted there. Considering the vast differences in socio-economic, geographical and historical conditions between India and those countries and also between different regions and communities within India, specific performance models need to be developed to account for all these differences. Besides promoting research using contin-gency or configurational frameworks, more longitudinal re-search designs are necessary to understand what kind of quali-tative shifts are made by start-ups at different stages in their graduation process from small-scale to newer levels of organi-sational development. At the same time researchers also must prepare themselves to circumvent the practical difficulties of data collection from small firms. Problems of conceptual de-marcation of the outcome variables from their antecedents (say for example, if growth is measured as an indicator of perform-ance, it may be quite possible that growth at one stage may be-come antecedent of growth for the next stage) and integration of different levels of analysis are some other critical issues one has to be mindful of.3.3 Entrepreneurship: An Independent DisciplineTo create and sustain more entrepreneurial firms due to their po-tential to contribute to wealth creation and to improve the per-formance of the large number of non-entrepreneurial small busi-nesses for their vital role as employment provider, the econo-mists, sociologists, psychologists, organisational scientists and experts from other disciplines working in different higher educa-tional institutions may consider motivating students to under-take research projects to study relationships between small busi-ness performance and factors that fall in their domains. At the
REVIEW OF INDUSTRY AND MANAGEMENTseptember 27, 2008 EPW Economic & Political Weekly94same time, considering the fact that entrepreneurship is a multi-dimensional construct and performance of small firms is determined by interplay of a variety of variables extensively studied under different perspectives, the research in entrepre-neurship and small business management calls for a very high level of integration of all theoretical perspectives. Therefore, entrepreneurship must be established as a separate interdisci-plinary area, in all Indian universities and other higher level academic institutions. The prime focus of the university departments of entrepre-neurship must be on promoting interdepartmental collaborative efforts to conduct explanatory, predictive and normative re-search. Being an interdisciplinary area, the departments of entre-preneurship must draw expert resources from diverse disciplines. The extensive network of Indian public sector banks can also play a key role in this endeavour. The banks while assisting the small-scale units for last several decades have already generated a large amount of recorded data on small firms which is very valuable for empirical research, particularly in the absence of systematic data collection on small businesses. The bankers, employees of state financial institutions and other small business support organisa-tions who have a penchant for data analysis and academic re-search must be motivated by the entrepreneurship departments of the academic institutions in the regions to get actively involved in empirical research projects of the departments. Through the combined efforts of experts from different fields and local bankers and business support organisations, the departments of entrepreneurship in the universities can become the catalysts for entrepreneurship and small business development across indus-tries and locations in India. In the changing environment the management schools have a special responsibility towards the development of the field of en-trepreneurship. Currently, the B-schools in the country that offer entrepreneurship, as a rule, are unable to integrate the course with other functional areas of the curriculum. Though manage-ment science takes a holistic view of performance, it is gener-ally limited to firm level analysis which is quite inadequate to understand the performance of small firms where the behav-ioural characteristics of the entrepreneur, his/her personal re-sources, sociocultural networks and other individual factors are intertwined with firm characteristics and environmental variables in a complex manner. The research studies conducted by the management scholars in theB-schools are also mostly focused on issues pertaining to the corporate sector, thanks to the general objectives of these schools as well as availability of funds for such research. The consultancy fee commanded by a management faculty for a corporate sector assignment cannot be compared with the amount that can be charged (if at all chargeable) from a small firm leading to a lack of interest among academics inB-schools to study the problems of small and marginal firms. 3.4 Funding for ResearchAs emphasised in this paper, without high level of conceptual and empirical research covering the entire range of issues, from idea generation to performance of small businesses, there is little scope for gaining better understanding of the dynamics of entre-preneurship and small business development. Obviously, to un-dertake high quality quantitative and qualitative research, both cross sectional and longitudinal and across locations, indus-tries, age, etc, funding support is required. Unfortunately, at present to procure even a small amount of fund for conducting an empirical research appears to be an extremely difficult task. Banks, industry associations and state financial corporations who are supposed to have a direct interest in the long-term health of theSME sector, do not exhibit much interest to fund basic research. Even the Planning Commission, which has a separate division for village and small enterprises, has a shock-ingly low level of commitment and callous attitude towards evaluating and supporting any meaningful research proposal in this area.8 Unlike in many developed countries where a good amount of corporate funding is available for theoretical and empirical research on entrepreneurship and small business management, in India the corporate sector also does not show any interest to fund such research projects. Ironically, there is still a good amount of funds available from financial and other organisations from both public and private sectors to conduct entrepreneurship training; but nothing for conducting research which actually should have preceded such trainings in order to come up with effective programme inputs and designs! Setting up of separate entrepreneurship departments in universities may create at least some amount of dedicated funds for small business research in different parts of the country. The business incubators that are currently operat-ing in many technology and management institutes with corporate as well as government support to promote innovative technology-based businesses can also consider allocating research funds for studying individual cases of ventures developed in those incubators, which can throw light on critical success and failure factors. ConclusionsAs the world economy is undergoing radical transformations rid-ing on a technological revolution, the Schumpeterian entrepre-neurs with their ability for creative destructions will be increas-ingly occupying the driver’s seat. India has been witnessing a good number of such entrepreneurs who have made the coun-try a frontrunner in the information superhighway. However, India also has a large number of micro and small enterprises who account for about 90 per cent of the total employment in the country. Most of these enterprises do not have any sustain-able competitive advantage. Hence, from the policymaking per-spective it is essential to figure out what needs to be done on one side to create more creative businesses or Schumpeterian entrepreneurs for more wealth creation, and on the other side to improve performance of the non-entrepreneurial small businesses. Research on entrepreneurship and small business develop-ment is still at a very nascent stage in India, notwithstanding the policy thrust given toSME development for past many decades. With a huge small-scale industry predominantly located in

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