Who is an Entrepreneur?
An entrepreneur of a company is an individual who takes the risk to own a business on the basis of an idea they gave the order to create a product or a service and keeping the assumptions of most of the risks in mind. The process of setting up a business, starting from an idea to the realization is referred to as entrepreneurship.
Entrepreneurs work for themselves to make profits. They also play a prominent role in the upliftment of the economy. The government keeps coming up with new ideas and policies to develop entrepreneurship in India like the Mudra Yojna. Have you ever wondered what an entrepreneur provides to the nation that makes the government so keen on promoting this field? Here we explain the role of entrepreneurs in the economy. Entrepreneurs have many vital parts to perform in the economy of the country. However, before that, it is critical to know what is meant by an economy.
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Functions of Entrepreneurs in the Economy
There are many functions of entrepreneurs in the economy. The economy can be seen as an area where production, trade, distribution, and consumption of goods take place. The economy follows the simple rule of supply and demand. If the consumers demand something, then that is supplied by the producers in the country’s economy. When there is a consumer need recognized by society, an entrepreneur comes into the picture to satisfy these needs. He makes sure to do his work efficiently, which in turn will convert to profits for him.
Contribution to the GDP
GDP is the monetary value of the final services and goods that are produced by an economy in a particular time frame, which is usually a year. Entrepreneurs in the economy provide these services and goods.
In a country like India, which is currently developing at a fast pace; the entrepreneurs have a pivotal role to play to produce the right amount of services and goods to satisfy the people's demands. In a situation where there were no entrepreneurs, the country would only be dependent on imports and its multinational companies, which in turn would either affect or even collapse the GDP. That's the reason why entrepreneurs are necessary to generate GDP for the economy.
Foreign Exchange Earnings: There are many Indian industries like the handloom industry that produce goods not just to meet the local demands but also to export them. These goods are sold to foreign countries, and this, in turn, lets the manufacturing country earn foreign exchange. This again adds to the economic growth of any country.
Generates Employment: When someone starts any new venture, then there is a need for various resources. This also includes humans working for them. There are people recruited to perform different kinds of functions in any organization. So entrepreneurs play a crucial role in the economy of the nation, which is to generate employment.
Tax Generation: When there is more employment created, this also leads to more taxes for the government. Tax revenues are increased, which can be used by the government for the improvement and the development of the country and to improve the standard of living of its people.
Eradicating Poverty: India is a highly labor-intensive country. This is because the country has a large population. The entrepreneurs are capable of generating employment which in turn helps the government as it brings down the unemployment number and thus poverty of the nation. When there is more income, people too can afford better things.
Entrepreneurs Introduce New Technology: Entrepreneurs have introduced many new technologies to the country’s economy. These technological advancements uplift the country and are another reason why the government helps entrepreneurs.
Entrepreneurs Help Other Industries in the Economy
The industries in the economy are interconnected. Some industries use the products of other industries. This lets one generate more services and goods as well as more revenue for the economy.
For example, flour is the finished product for a company that has its flour mill and manufactures flour. However, the same flour now works as a raw material to produce biscuits. One product or idea of an entrepreneur's business develops another product or service, and this forms a chain.
Specific Tax Revenue: The entrepreneurs pay direct and corporate taxes to the state government. Without this tax, the state government cannot function. The entrepreneurs help to generate additional taxes for the country.
Bringing in FDI
A lot of entrepreneurship startups are funded by companies in foreign countries. This lets the economy bring in more foreign investments. The RBI helps these startups as it relaxes the policies that it puts on the FDI.
All these points clearly explain the role of entrepreneurs in economic development. They are a massive asset to the country. The functioning of the economy has a significant role to play, depending on the existence of entrepreneurship.
There are many functions an entrepreneur fulfills in the economy. Entrepreneurship is crucial to any society because it does not just generate profits for the entrepreneurs but improves the living standards of the people of the country as it creates employment. Entrepreneurship creates wealth for the country and also gives rise to many related businesses. The entrepreneurs drive change because of innovation as they develop new products and bring in new technologies that help the economy to grow as a whole.
Functions of Entrepreneur
An entrepreneur performs a wide variety of functions and some of which are listed below-
Initiation of Business Enterprise- The most primary function of an entrepreneur is his initiation in a business enterprise and he performs the following functions-
He generates the ideas for setting up the business.
He plans for the setup of the business unit.
He makes sure the factors of production which are land, labor, and capital are organized.
Risk Bearing- It is assumed by the entrepreneur that there will be risks in a business and only the person who has the capability to take risks will become an entrepreneur.
Decision Making- Several decisions regarding the company are to be taken by the entrepreneur in respect to the location of the business unit, selection of employees, production decisions, and many more.
Coordination- One of the most important functions to be performed by an entrepreneur is coordination. Coordination includes the working of the business empire, various functional activities such as production, finance, marketing, etc.
FAQs on Functions of Entrepreneurs in Economic Development
1. What is an entrepreneur's primary role in an economy as per the CBSE Class 11-12 Economics syllabus?
An entrepreneur's primary role is to act as a catalyst for economic activity. They identify unmet needs in the market, organise the factors of production (land, labour, capital), and take calculated risks to launch a new business enterprise. Essentially, they convert innovative ideas into tangible goods and services that drive economic growth.
2. What are the key functions of an entrepreneur in economic development?
An entrepreneur performs several crucial functions that contribute to economic development. The most important ones include:
- Business Initiation: Conceptualising a business idea and taking the initiative to establish a new venture.
- Risk-Bearing: Assuming the financial and operational risks inherent in starting and running a business where the outcome is uncertain.
- Innovation: Introducing new products, services, production methods, or technologies to the market.
- Coordination: Effectively combining and managing the factors of production to achieve maximum efficiency and output.
- Decision-Making: Making critical decisions regarding business location, product lines, pricing, and marketing strategies.
3. How do entrepreneurs contribute to a country's Gross Domestic Product (GDP) and foreign exchange earnings?
Entrepreneurs directly boost a country's Gross Domestic Product (GDP) by producing new goods and services, which increases the nation's total economic output. Furthermore, when these goods are sold to other countries (exported), they generate valuable foreign exchange. This inflow of foreign currency strengthens the national economy and improves its balance of payments.
4. In what ways do entrepreneurial ventures lead to employment generation and poverty reduction?
Every new business venture requires human resources to operate, from production to marketing and administration. This creates direct employment opportunities, reducing the unemployment rate. By providing jobs and steady incomes, entrepreneurship empowers individuals with purchasing power, which helps in improving their standard of living and contributes significantly to poverty eradication.
5. Why is the risk-bearing function so fundamental to an entrepreneur?
Risk-bearing is fundamental because every business venture faces uncertainty regarding its success and profitability. An entrepreneur invests their own or borrowed capital and dedicates their time and effort without any guarantee of a return. This willingness to accept financial and psychological risks is what separates an entrepreneur from a manager. Without this function, innovative but unproven ideas would never be pursued, and economic progress would stagnate.
6. How does the success of one entrepreneur create a positive ripple effect for other industries?
The success of an entrepreneur creates a ripple effect through forward and backward linkages. For example, a successful software company (the entrepreneur's venture) creates demand for hardware manufacturers, office space, and marketing agencies (backward linkages). It also supports app developers and IT training institutes that use its platform (forward linkages). This interconnectedness means a single successful venture can stimulate growth and create business opportunities across a wide range of related sectors.
7. Beyond just starting companies, how do entrepreneurs act as agents of technological change?
Entrepreneurs are key agents of technological change because they constantly seek a competitive edge. They do this by introducing new technologies, developing more efficient production processes, or creating innovative products that disrupt existing markets. For example, the introduction of e-commerce platforms revolutionised the retail industry. This forces other businesses to adopt new technologies to stay relevant, leading to an overall technological advancement in the economy.
8. What is the core difference between an entrepreneur and a manager?
The core difference lies in their primary function and relationship with risk. An entrepreneur is an innovator and risk-bearer who brings a new business venture into existence. Their main role is to start and build. In contrast, a manager is an employee who administers and optimises an already existing business. Their main role is to maintain and grow the operations established by the entrepreneur, without bearing the ultimate financial risk of the enterprise.
