Business Environment-Regulatory Role of Govt.
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Transcript of Business Environment-Regulatory Role of Govt.
Regulatory Role of Government
Module-3
04/08/23 1Surana College PG Centre
Political System
Forms of Political System
Democratic – Power is vested with people
Totalitarian- Power is vested with one or a group of people
Role of Political SystemPolitical system in a country Decides Promotes Encourages Shelters Directs and Controls
the Business Activity
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Role of Individual Constituents of Political System
Legislature Government Judiciary
Policy Making Directing Settle Legal Disputes
Law Making Controlling Judicial Review
Budget approval
Implementing
Executive Control
Acts as a mirror of public opinion
• Constituents of Political System
Legislature
Executive/
Government
Judiciary
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Impact of Government on BusinessGovernment’s Action Government’s Motive Impact on Business
Labour Laws ( Role – Direct / Control )
Ensure Social security, Improving Standard of Living, Working condition
Cost of production increases, Affects Profitability & Competitiveness
Tax Laws ( Role – Direct / Control )
Generating revenue for re-investment , saving affected people, industry
Cost of production increases, Affects Profitability & Competitiveness
Commercial Laws ( Role – Direct / Control )
To ensure rights of parties Increased business confidence
Tariffs / Subsidies / Import ban / Export ban( Role – Encourage / Shelter )
To protect local industries from global competition
Local industries compete globally
Products reserved for SSIs & Public sectors ( Role – Decides / Promotes )
To promote mixed economy
Limited area of operation , could not be diversified, Vertical Integration not possible ,cost increase04/08/23 4Surana College PG Centre
Industrial Policy
1948, 1956 , 1991
Industrial Policy – 1948 Accepted Importance of both Private &
Public sectors Divided industries into 4 categories
Recognised importance of Foreign Capital Recognised importance of SSIs’
Industrial policy Indicates
the relationship between
Government & Business
It contains guidelines for
govt’s administrative action
it has no quantitative
target
It is not passed as a Law
Violation of Industrial
Policy cannot be challenged
in Court
State Monopoly Arms, ammunitions , Atomic Energy, Rail transport
Mixed Sector Coal, Iron , Steel , aircraft, ship building, Manufacture of Telecom, Aircraft , Wireless, oil, mineral
Government Control Automobile, Chemical, Textile
Private Control All other Industries
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Industrial Policy
1956
Industry ClassificationsSchedule-A: ( 17 industries ) – Govt. Arms , Ammunitions , Defence equipments ,
atomic energy , iron & steel , Heavy plant &Machinery, Heavy electrical plant , Coal & lignite, mineral oil, mining ,aircraft , air & rail transport, Telecom cables, electricity generation & distribution , ship building
Schedule- B: ( 12 industries ) Private & Govt.machine tools , Ferro-alloys , drugs ,fertilizers , synthetic rubber , chemical pulp ,road transport , sea transport , carbonisation of coal , mining of aluminum & non-ferrous metals.
Private sectorothers
Objective:Accelerate Economic growth rateExpand public sectorIncrease employment opportunitiesPrevent creation of monopolyExpand Cottage,village,SSIs
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Industrial Policy
1991
Policy Initiatives
1. Industrial Licensing Policy
2. Public sector Policy
3. Foreign Investment
4. Foreign Technology Agreements
5. MRTP Act
Objective:Remove regulatory systemIncentives for industries in backward areasTo Run the PSUs on business linesEncourage EntrepreneurshipLink Indian economy to global marketDevelop indigenous technologyPromote productivity & employment generation
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Industrial Policy
1991
Industrial Licensing - It is required to establish, to manufacture goods at a specific location before 1991.
In the new policy licensing requirement was abolished except for
1. Distillation & Brewing of alcoholic drinks2. Manufacturing Cigarettes & Tobacco substitutes3. All types of electronic aerospace & Defence equipments4. Industrial Explosives5. Certain Hazardous chemicals
Exempted factories have to furnish a memorandum to Industries department
Location: In the new policy projects can be established at any
location except cities . In a city of 1 million population it has to be established 25kms away from city.
Industrial
Licensing
Policy
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Industrial Policy
1991
Number of Industries reserved for public sector reduced to 8 and then to 2 ( Atomic energy & Railway )
Growth of PSUs in the following Priority sectors1.Essential infrastructure Goods & Services2. Exploration & Exploitation of Oil & Mineral resources3. Strategic Defence equipments4. Technology development & building of manufacturing capabilities in areas which are crucial for economic development
Autonomy through MOU – Navaratnas Bringing down government equity to 26 %
in non-Priority sector PSUs Close down PSUs which can not be revived Fully protect the interest of workers
Public
Sector
Policy
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Industrial Policy
1991
Foreign Investment allowed up to 51 % of Equity capital in FERA companies
Foreign Investment allowed up to 26 % of Equity capital in Defence productions sector.
Up to 100 % in certain sectors ( real estate )
Stock market opened for foreign investment
EXIM Policy liberalised , tariffs reduced , lifted import restrictions
Foreign exchange rate policy liberalised , Rupee was made fully convertible on current account and then recently partly on capital account.
Foreign
Investment
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Industrial Policy
1991 Foreign technology agreement
under automatic route for priority sectorPriority sectors are -Infrastructure , Exploration , Defence products
Foreign
Technology
Agreement
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Industrial Policy
1991 The government will not scrutiny the
investment decisions of MRTP companies
Prior approval of MRTP companies for
expansion not required
Restrictions on merger, acquisition and
transfer of shares will be replaced
MRTP commission will be strengthened to
take action against restrictive & unfair
trade practice. MRTP commission will be
empowered to enquire into the complaints
of customers
MRTP Act is replaced by Competition Law
MRTP ActMonopolies and
Restrictive Trade Practices
Act
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Public Sector
Public sector enterprise is an undertaking owned & managed by
Government.
244 enterprises are public sector enterprises under the control of
Central Government
Total investment Rs. 4,21,000 Cr.
1100 are State Public sector enterprises with 50,000 Cr. Investment
These PSUs accounts for 25% of GDP & One-third of export
PSUs accounts for 70 % of workers employed in organised sector
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Public Sector
Objective:
Help in rapid economic growth
Earn return on investment & generate resources for development
Create employment opportunity
Assist & develop ancillary & small scale industries
Promote redistribution of income & wealth
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Public Sector
Organisation of Public sector Units:
Public enterprises are organised in the following forms:
1. Ministry
2. Departmental Undertakings
3. Government Company
4. Public corporation
5. Holding company
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Public Sector
Organisation of Public sector Units:
Ministry Management by a ministry, Railways, Budget to be approved by Parliament, Headed by Minister and management board
Departmental Undertaking
It is directly subordinate to ministry, ICF, Ordnance factory, financed by annual appropriation from treasury, revenues are paid into treasury. Employees are civil servents, can be sued by following the procedure to sue the government
Government Company
51% or more of equity owned by government, created under Company Law, Directors are appointed by Govt., fund from government
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Public Sector
Navaratnas:
In 1997 govt. granted autonomy to 9 public sector units so as to
support them to become global companies. These 9 companies
are BHEL, BPCL, HPCL, IOC, ONGC, SAIL, VSNL, NTPC, IPCL. Later
GAIL ,MTNL,BEL,HAL were given the navaratna status.
These companies are free to decide upon joint venture, capital
expenditure, set up PSEs, set up subsidiaries / office in foreign
countries, raise funds from capital market, set alliance. They
enjoy substantial managerial & operational autonomy
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Privatisation
Privatisation :Privatisation means transfer of ownership and /or management of an
enterprise from the public sector to the private sector.Disinvestment:Disinvestment means sale of shares of public sector enterprises to outsiders.
It is one of the method of privatisation.Purpose of Privatisation 1. To increase efficiency2. To reduce the monopoly of govt.3. To encourage private & foreign investment4. To reduce the state’s administrative work5. To encourage wider ownership of public
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Privatisation
Method of Privatisation in India:1. Disinvestment Route
This involves sale of equity shares of public sector units to outsiders. Disinvestment policy was introduced in 1991-92. Up to 20% of
equity in select PSUs sold to Public sector Institutional investors like LIC, UTI .
In 1993 Disinvestment committee under the chairmanship of C.Rangarajan was set up to advise on the mode of disinvestment.
1996 Disinvestment commission was set up and 58 PSUs were recommended to shift to private management without sale of shares
1999 – PSUs were classified under Strategic & non-Strategic areas for disinvestment purpose.
Strategic Sectors – Defence equipments , arms , ammunitions, air crafts, warships, atomic energy , railways.
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Privatisation
Method of Privatisation in India:1. Disinvestment Route….Cont. Rangarajan Committee Report Recommendations:
1. Industries reserved for PSUs – Up to 49% of equity can be sold2. PSUs having dominant market share – Up to 74 % can be sold3. In all other cases equity can be sold up to 100%4. Best disinvestment method is offering equity to public at a fixed price 5. Once shares of PSUs are traded in Stock market ‘Fixed price ‘ method can be used . Untill such time sale can be made through auction
Disinvestment Commission:1. Was set up in 1996 , to determine extent of disinvestment, to select the PSU to be divestd, to recommend route to disinvestment, to supervise overall sale .
As on date 76 PSUs were divested and Rs. 49,000 cr is raised.
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Privatisation
National Investment Fund:Set up in 2005 , into which the sale proceeds of PSUs will be
credited. This fund will be used to develop Infrastructure & Education, health, employment generation and in capital projects.
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Small & Medium Enterprises ( SMEs)
Micro Industries
Small Industries
Medium Industries
THE MICRO, SMALL AND MEDIUM ENTERPRISES DEVELOPMENT ACT, 2006
Enterprise means an industrial undertaking or a business concern or any other establishment, by whatever name called, engaged in the manufacture or production of goods, in any manner pertaining to any industry specified in the First Schedule to the Industries Development and Regulation Act, 1951.
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Small & Medium Enterprises
Type Micro Small Medium
ManufacturingPlant & Machinery
<=Rs.25 LP&M> Rs.25 L <=500
P &M>Rs.500 L< =1000
ServiceEquipment<=Rs.10 L
Equipment>Rs. 10 L<=200
Equipment>Rs. 200 L<=500
THE MICRO, SMALL AND MEDIUM ENTERPRISES DEVELOPMENT ACT, 2006
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Small & Medium Enterprises
Role of SMEs’
Dynamic Economy
Socio-Economic Development
Accounts for 35% – Industrial
Production40% - Export60% - Employment
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Small & Medium Enterprises
Importance
Provide – Increased employment
Require Low gestation period
Easy to set up in rural & backward areas
Need Small market
Encourage Local Entrepreneur
Influence standard of living of people
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Small & Medium Enterprises
• Government Policy Initiatives
1991
• Protection Promotion1. Aim : Promotion & Strengthening of SMEs’
2. Changes in Investment Limit
3. 24 % Equity Participation by other Companies
4. Integrated Infrastructure development
5. Encouraging Industry associations
6. Common Testing facility
7. Productivity Training
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Small & Medium Enterprises
• Government Policy Initiatives
1999
1. Aim : Promotion of SMEs’
2. Changes in Investment Limit
3. De-reservation of items
4. Foreign participation
5. Establishment of Growth centres
6. Export promotion
7. Marketin assistance
8. Incentives for Quality Improvement
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Small & Medium Enterprises
• Recent Policy Initiatives
2006
1. THE MICRO, SMALL AND MEDIUM ENTERPRISES
DEVELOPMENT ACT – 2006 ( MSMED Act – 2006 )
2. NATIONAL MANUFACTURING COMPETITIVENESS
PROGRAMME (NMCP)
3. PACKAGE FOR PROMOTION OF MICRO AND SMALL
ENTERPRISES
4 . RESERVATION / DERESERVATION OF PRODUCTS FOR
MANUFACTURE IN THE SMALL SCALE SECTOR
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Small & Medium EnterprisesRecent Policy Initiatives
THE MICRO, SMALL AND MEDIUM ENTERPRISES DEVELOPMENT ACT, 2006
• Objective• PROMOTION
• DEVELOPMENT and
• Enhancement of Competitiveness
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Small & Medium EnterprisesTHE MICRO, SMALL AND MEDIUM ENTERPRISES DEVELOPMENT ACT, 2006
• PROMOTION
• DEVELOPMENT
and
• ENHANCEMENT of
Competitiveness
through
• Development of skill• provisioning for technological
upgradation• providing marketing assistance or
infrastructure facilities • Credit Facilities• Measures against Delayed payments
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Small & Medium EnterprisesTHE MICRO, SMALL AND MEDIUM ENTERPRISES DEVELOPMENT ACT, 2006
• PROMOTION
• DEVELOPMENT
and
• ENHANCEMENT of
Competitiveness
through
• Development of skill• National Institute for small Industry
Extension & Training - Hyderabad ( NISIET)
• Indian istitute of Entrepreneurship ( IIE ) – Guwahati
• National Institute for Entrepreneurship & small Business Development – Newdelhi ( NIESBUD )
• + 12 other Institutes
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Small & Medium EnterprisesTHE MICRO, SMALL AND MEDIUM ENTERPRISES DEVELOPMENT ACT, 2006
• PROMOTION
• DEVELOPMENT
and
• ENHANCEMENT of
Competitiveness
through
• provisioning for technological upgradation
• Small Industries Development Organisation ( SIDO )
• National Small Industries Corporation Ltd. ( NSIC
• National science and technology Entrepreneurship Development Board ( NSTEDB
• National Productivity Council ( NPC )
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Small & Medium EnterprisesTHE MICRO, SMALL AND MEDIUM ENTERPRISES DEVELOPMENT ACT, 2006
• PROMOTION
• DEVELOPMENT
and
• ENHANCEMENT of
Competitiveness
through
• providing marketing assistance or infrastructure facilities
Director of export Promotion ( DEP)
Director General of Supply & Disposal
( DGSD )
Rural Industrial & Marketing Corporation
( RIMCO )
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Small & Medium EnterprisesTHE MICRO, SMALL AND MEDIUM ENTERPRISES DEVELOPMENT ACT, 2006
• PROMOTION
• DEVELOPMENT
and
• ENHANCEMENT of
Competitiveness
through
• Credit Facilities• Commercial Banks• Counsil of Scientific & Industrial
Research• Small industries Service Institute• National Small industry Corporation
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Small & Medium EnterprisesTHE MICRO, SMALL AND MEDIUM ENTERPRISES DEVELOPMENT ACT, 2006
• PROMOTION
• DEVELOPMENT
and
• ENHANCEMENT of
Competitiveness
through
• Measures against Delayed payments
• Micro and Small Enterprises Facilitation Council
• Arbitration and Conciliation Act 1996
• Courts
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Small & Medium EnterprisesRecent Policy Initiatives - 2006
2. NATIONAL MANUFACTURING COMPETITIVENESSPROGRAMME (NMCP)
Objective : To support manufacturing enterprises to become Competitive
Schemes : 1. Support for Lean manufacturing (Without Waste &
implementing flow )
2. Promotion of ICT in manufacturing ( Information
communication Tech )
3. Setting up Mini Tool Rooms
4. Encouragement for Quality Management Standards &
Tools
5. Campaign for investment in Intellectual property04/08/23 36Surana College PG Centre
Small & Medium EnterprisesRecent Policy Initiatives - 2006
3. PACKAGE FOR PROMOTION OF MICRO AND SMALL ENTERPRISES
Objective : To Enhance Competitiveness
Package : 1. Legislative backup
2. Credit support
3. Tech & Quality up gradation support
4. Marketing support
5. Empowerment of women entrepreneur
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Small & Medium EnterprisesIncentives for SMEs’
Export Incentives: Import Replenishment Licenses (REP)Importers are eligible for REP to import
raw materials and spares which are used to produce export items.
Deemed Export BenefitsProducers who supply the inputs to final
exporters are deemed to be exporters and are eligible for REP
Import Export Pass Book SchemeExportes having good track record are eligible to import duty free raw materials.
Excise Concession:Up to 30 Lakhs for Ssis.
Incentives for backwrad areas: Investment Subsidy:Category –’A’ Districts – up to 25 LakhsCategory –’B’ Districts – up to 15 LakhsCategory –’C’ Districts – up to 10 Lakhs Tax Holidy: Tax deduction upto 6% of profit –
80J for 5 years from production date
EOU, EPZ – exempt fro corporate income tax upto 5 yrs.
CST exemption for Khadi & Village industries for 5 yrs.
100% CST exemption for Tiny,small & large scale industries for 3 – 5 yrs. in different zones
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Small & Medium EnterprisesIncentives for SMEs’ …….Contd.
Other Incentives: Interest free loans Price preference Allotment of developed shed, raw
material Land & building at concessional ratesSubsidy for Artisans, handlooms Buying test equipments Capital investment Interest Market / Feasibility studies Power generation R&D works Transport Technical consultancy
Incentives for Handicapped NRIs’ Retired defence personnel Women EntrepreneursExemptions from: Income tax Property tax Stamp duty Sales tax
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Small & Medium EnterprisesSickness in SMEs’
• Sickness Definition : • The definition of sickness in SME sector has been changing over time.
The Third Census on SSI SectorKohli Committee:
"A small scale industrial unit is considered as sick when if any of the borrowal accounts of the unit remains substandard for more than six months, i.e., principal or interest, in respect of any of its borrowal accounts has remained overdue for a period exceeding 6 months
ORThere is erosion in the net worth due to accumulated losses to the extent of 50 per cent of its net worth during the previous accounting year,
and The unit has been in commercial production for at least two years."
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Small & Medium EnterprisesSickness in SMEs’
• Criteria to identify sickness
In the Third Census, the following criteria were adapted to identify sick/
1. Continuous decline in gross output compared to the previous two financial years;
2. Delay in repayment of loan from institutional sources, for more than 12 months; and
3. Erosion in the net worth to the extent of 50 per cent of the net worth during the previous accounting year.
• Units satisfying one or more of the above criteria have to be treated as Sick unit
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Small & Medium EnterprisesSickness in SMEs’- Causes
• Internal
• Anatomical causes
1. Underestimation of Project cost2. Old Technology3. Wrong Site4. Unwanted investment in Fixed
assets5. Defective Plant & Machinery• Operational causes
1. Defective Financial planning2. No R&D planning3. Incapable Management
• External
1. Shortage of supply in inputs
2. Rise in raw material cost3. Radical change in govt.
policy4. Recession in Industry5. Foreign exchange
fluctuations
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Small & Medium EnterprisesSickness in SMEs’ - Symptoms
At Implementation Stage Undue delay in implementation Lack of coordination with various agencies
When the project has started operation Increase in level of inventories Increase in rejection rate of finished goods Irregularity in payment of loan Industrial relations Problem
Position of cash credit account Cash credit or overdraft account has been overdrawn or frequently
drawn Returned unpaid cheques Long pending unpaid bills Pledged stocks are overvalued to obtain fund from government Uninsured stocks
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Small & Medium EnterprisesSickness in SMEs’ - Cures
• Discover new Products & Markets
• Enhance accessibility to market Information
• More thrust on R & D
• More Professionalism
• Planned training
• Modernising Operation
• More attention to Marketing
• Frequent use of advertisement
• Efforts to collect dues from buyers
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Small & Medium EnterprisesSickness in SMEs’ – Role of BIFR
• Under Sick Industries Companies Act -1985 , Board for Industrial and
Financial Reconstruction ( BIFR ) was setup to make the sick companies
viable.
The BIFR can direct a financial institution to prepare a scheme for revival of
sick companies.
The scheme could provide for
1. Financial reconstruction of the company
2. Proper management of sick company by change or takeover the
management
3. Amalgamation of sick company with other company
4. Sale or lease of the sick company
Based on the scheme provided by financial institution BIFR will take action
in line with the High court proceedings.04/08/23 45Surana College PG Centre
Entrepreneur
• A person who creates something new with value and assuming the risk & Reward
• Something New + Value + Risk + Reward
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Some Entrepreneurs
Entrepreneur Something New Value Risk Reward
‘Speedee Service System ‘
Demand side Innovation
Mr. Ray Kroc American Way of Life
J. McDonald
‘Pay from future earnings ‘
Demand side Innovation
Credit risk Global productivity
Cyrus McCromick
Pace University
‘Evening College’ Demand side innovation
Perception High –Middle class Education
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Types of EntrepreneursType of BusinessBusinessTradingIndustrialCorporateAgriculturalRetailServiceFranchise
OthersImitatingForcedNational/InternationalIntrapreneurImmigrant
MotivationPureInducedMotivatedSpontaneous
GrowthGrowthSuper Growth
Stage of DevelopmentFirst generationModern Classical
Use of TechnologyTechnicalNon-TechnicalProfessionalHigh/Low Tech.
GenderMale, Female
Scale of OperationSmall, Large
AreaRural , Urban
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Role of entrepreneurs in Economic Development
• Promotion of capital formation.• Immediate large-scale employment.• Promotion of balanced regional
development.• Reduced concentration of economic power.• Encourages effective resource mobilization.• Promotes export trade.
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