Food Processing in Bihar: Entrepreneurial Perceptions

A central actor in the development of food processing as an industrial sector is the entrepreneur. Though less technology-driven than industries like telecommunications, businesses require a certain optimum linkage with upstream input-sector (agricultural produce markets) as well as the downstream retail segments. Successful entrepreneurship is necessary for this, as it discovers high-value-added items and linkages within the product networks in food processing. We introduce the notion of non-physical costs of doing business in this chapter, which are present in addition to the physical costs we discuss in the previous chapter. These costs are due to entrepreneurial inexperience and financial market imperfections. The missing middle size implies higher non-physical costs, as inexperience costs go up. Using these costs as well as a notion of outside options, we develop a theory of entrepreneurial mindsets that determine their behaviour. To do this, we enrich the theory of counterfactual thinking with a regional qualifier as a region-based counterfacatual thinking (rCFT). This theory accounts for how different entrepreneurial mindsets manage risks in business, even if they are mitigated with government support in the form of subsidies. Our primary survey among entrepreneur in Bihar’s food processing industry (2016–2017) allows us to capture rCFT empirically. The question that identifies rCFT is whether the entrepreneur would do business in Bihar if she/he had not been a native of the state. It isolates the effect of ‘doing business’ from ‘doing business in Bihar’ so that the perception of risk of business in the region is captured. Using this framework we categorize entrepreneurial mindsets. Of the three possible types we identify, it is only the local type of entrepreneur with the ability to leverage specific regional information appropriately who express positive rCFT. Empirical evaluation of the survey responses show that positive rCFT is correlated with low-risk perception of doing business and vice versa. Therefore, a possible reason for policy failure in Bihar is the failure to target the right entrepreneurial mindset underscoring the importance of horizontal policies that develop entrepreneurial skill.