Failing Financial and Training Institutions: The Marginalization of Rural Household Enterprises in the Indian Punjab.

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Failing Financial and Training Institutions: The Marginalization of Rural Household Enterprises in the Indian Punjab.

The tiny, family-owned and managed household enterprise is the overwhelmingly dominant form of private, non-farm, economic organization in the developing world. Harnessing the latent potential of these own account enterprises (OAEs) is now widely acknowledged as a legitimate policy objective to generate productive employment and to promote sustainable long-term growth [ILO 1995; World Bank 1995]. The design of appropriate institutions, and the reform of existing ones, is recognized as occupying a key part of this process now that the "market-versus-state" dichotomy has been replaced by the more pragmatic "market-and-state" approach. Such a program assumes particular urgency in rural areas.

In the countryside, entrepreneurs face daunting hurdles relating to both the startup and consolidation of business. Two of the most significant are raising finance at affordable terms and acquiring necessary skills. The purpose of our paper is to highlight, through a village study, these constraints in the populous Indian economy. We argue that problems of administative complexity, limited information, discrimination and gender bias, and stymied access to formal institutions have helped to create and perpetuate a culture of corruption. The result is that entrepreneurs are forced to fall back on a weak local resource base and to rely heavily on informal avenues of finance and know-how. This condemns the majority of OABs to operate on the margins of viability and the households to remain in poverty [World Bank 1997].

Punjab and the Research Methodology

The Indian state of Punjab is a region where we might reasonably expect appropriate rural institutional support to be already in place. This is primarily due to the spectacular success of the Green Revolution. In order to support the spread of the high-yielding varieties of seeds, the banking and training infrastructure expanded enormously during the mid-1960s. Located in the northwest of the subcontinent, Punjab, although a small state in terms of population and area, has a disproportionately large and modern agricultural sector compared to the rest of India. According to the 1991 population census, Punjab represented only 1.7 percent of India's total land area and constituted 2.4 percent of its population [Census of India 1991, 10, 40]. Punjab's share of India's cultivated area is disproportionately high, and it has a fully modern irrigation system.

It is primarily on the strength of its agricultural performance that Punjab, along with neighboring Haryana, has the lowest poverty ranking in India [Datt and Ravallion 1997, 138]. As a consequence, the state has enjoyed the highest per capita annual income in the Union for a generation, i.e., Rs.6,274 ($369 at the prevailing exchange rate) in 1988-89--two-thirds higher than the all-India average of Rs.3,875 [Statistical Abstract of Punjab 1990, 106f]. However, many small farmers scarcely benefitted from the new technology and have been keen to diversify into of...

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