All these points resonate and reflect what I have seen myself with people we knew well.
India decades ago had very strong incentives for small scale industry development - plots of land in the industrial areas at favorable prices, licenses (in the days of the license raj), electric connections and loans. Rather than benefit the meritorious, what happened was exactly what Shanta described - the well connected and their families got these benefits.
In many cases, these beneficiaries simply resold the land, licenses etc. to actual businessmen at significant profits, sometimes staying on as paper owners.
Where they did try to run these businesses themselves, they generally did not do that well as they had no expertise in that area.