India is demographically gifted and rightly so, with nearly 50% of the population below the age of 25. Unlike the aging demographics of the West, India’s young population has been on the rise. But, this demographic boon may fast turn into a bane if sufficient employment opportunities are not available to these young ambitious residents. Various industries add a few thousand jobs every year and soon roll them back as well. This creates a situation when entrepreneurship needs to be considered as a tool of economic strength to the mango people.
With this lesson, we aim to unlock the important aspects of entrepreneurship in India. Read on to know more about government support, the support mechanisms needed, the government support available and why we are lagging behind?
- Employment opportunities help in meaningful
engagement of youth
- A surge in the purchasing power results in demand
for goods and services
- Infrastructure developmental activities
- Increased contributions to CSR activities
- Greater revenue collections to the government
- through direct as well as indirect taxes
- Technological innovations make life better
Thanks to the license permit quota raj, the entrepreneurial spirit of Indians was repressed forever. Not just the spirit was dented, the economic progress was also slow as there were several entry barriers to private business set ups. In order to counter the problem of depreciating foreign exchange reserves in 1970s, some programmes were introduced to promote export oriented industries.
While discussing the rise
of entrepreneurship in India, it is also worthwhile to talk about the nascent
concept of venture capital in India. Initially, Venture Capital functions were
run by development financial institutions such as the IDBI, ICICI and State Financial Corporations. Based on World bank’s study on the potential of development of Venture Capital in the private sector, the government took a policy initiative and guidelines for Venture Capital Funds were floated in 1988. The Technology Development and Information Company of India Ltd. (TDICI) and Gujarat Venture Finance Ltd. were set up in 1988. Owing to the rigid regulatory framework, no significant Venture Capital activity happened till mid-1990s. Absence of adequate funding avenues was definitely a great hindrance to entrepreneurs who were brimming with ideas but could not bring them to life owing to paucity of funds.
With economic reforms of 1990s, guidelines were introduced by SEBI in
1996 to regulate and facilitate VC funding. This proved to be an extremely
crucial step in the funding of start-ups and the IT and telecom sectors
immensely benefitted from the same. Economic reforms followed by
formation of a separate central government department for SME sector, have
brought about a positive shift in encouraging entrepreneurship. These policy
changes ushered a new era for SMEs where their contribution to production and
exports reflected their substantial technical change in the production process.
Key observations in a recent study by Gallup suggest that nearly 60% Indians possess strong entrepreneurial qualities – optimism, business-mindedness, persistence. Yet most Indians do not want to start their own business. Why? A look around may be sufficient to see ample reasons that prove to be a hindrance to the entrepreneurial spirit:
- Bureaucratic potholes that ensure that a good number
of early days are spent running from one table to another, from one department
to another to get the necessary permissions in place. The corruption factor
also dissuades many people from taking up the entrepreneurial route.
- Poor infrastructure facilities prove to be a huge hurdle to the
distribution network. Scarcity of electricity, a good number of non-motorable
roads, the problems are many. Low internet penetration has added to the woes of
- Gallup’s recent study found that only about 22% of aspiring
entrepreneurs have the adequate access to training. Also, though many
indigenous serial entrepreneurs have made their mark, they are not ready to
impart learnings from their journey to aspirants.
- Lack of right type of funding options is a major problem as many VCs are ready to invest in specific sectors only and may not be open to funding new ventures in diverse non-traditional sectors (eg: non-IT).
- Personal risk such as uncertainty of success, financial risk such as loss of savings.
- Entrepreneurship in India comes with its huge share of cultural
bottlenecks. There is a never-ending family pressure for job security through
traditional means. Add to it some myths like not being able to find a good
matrimonial alliance if one runs his/her own business!
- Educational system in India is held within rigid boundaries one that prepares students to take up traditional employment rather than instilling the confidence to do something that one likes.
- Inability to find trusted business partners: Indians are more
comfortable having business partners within the confines of their family. Lack
of a sound judicial infrastructure can be partly blamed as there are no
enforcement mechanisms for protection of entrepreneurs.
- Entrepreneurship hub: India needs its own version of the Silicon Valley
but to turn this into reality there are various steps that need to be taken –
first would be identification of a location that has enough risk-takers and
skilled human resources. This needs to be followed by infrastructure
development to create an ecosystem optimum for new businesses to spring up.
- Market for start-up products: The key to success of new businesses lies in the acceptability and the market for its products or services. Quality products and services created by the new generation entrepreneurs can be supported by the government with preferential procurement for its various departments. This would help businesses to have a foothold to start creating shelf space.
- Incentives for angel investors: Can be explored to tap the latent money of HNIs. Tax incentives on personal income tax for those investing in start-ups can have a positive impact in this respect. This channel can also be used to attract NRIs to invest in budding start-ups.
- Corporate contribution: Corporates may also be incentivised for various activities that can help in entrepreneurial development. Like the CSR initiative that has channelized support of corporates for social causes, their involvement will immensely
benefit start-ups through financial and non-financial support such as timely guidance.
- Financing through venture debt: A combination of venture capital and debt instruments, venture debt is important for the investor as well as the start-up. While the start-up receives funding, the investor is rewarded for the risk taken through the option of share purchase at a pre-meditated price and time.
India’s tryst with entrepreneurship is an emerging phenomenon when compared to its 65 years of existence as an independent nation. While socialist policies were at the helm of deciding the policy framework in the early years, the last 3 decades have brought about changes in the government’s thinking leaning towards a market oriented economy. Various support mechanisms have been designed by the government to nurture the entrepreneurial mindset, some of which are highlighted below:
SIDBI was established in April 1990 under an Act of Parliament as a wholly-owned subsidiary of Industrial Development Bank of India (IDBI) is the principal financial institution for the following three-fold activities:
- Financing the small scale sector by providing
indirect assistance to primary lending institutions (PLIs) and direct
assistance to small scale units.
- Development and support services for promoting
- Liaisoning with other institutions engaged in
The government of India has adopted some global support mechanisms which have been customised as per local requirements. To focus on certain industries, the foundation was laid by establishing institutes under the umbrage of government departments.
National Science and Technology Entrepreneurship Board promotes entrepreneurship development through Science & Technology. This program has encouraged researchers and academicians in the field of Science & Technology to take interest in socially relevant entrepreneurial roles. Under the flagship of NSTEB, various institutes and training programmes have been formulated such as:
Business Incubators have been established to ensure that technology and
knowledge driven enterprises are established and research outputs are utilised
in a commercial manner for benefit of all stakeholders.
- STEP – Science and Technology Entrepreneurs Park aims to provide link between universities, academic and R&D institutions, provide R&D support to the small-scale industry and promotes innovation based enterprises
- IEDC –
Innovation and Entrepreneurship Development Cell is promoted in educational institutes to
create entrepreneurial culture and encourage innovation amongst students
- EDP –
Entrepreneurship Development Program, a training program of 6-8 weeks duration
aims to train students in various aspects of starting an enterprise
- OLPE – Open Learning Program in Entrepreneurship is a distance learning programme that helps potential entrepreneurs through study materials and contact programmes which impart knowledge on end-to-end processes involved in running an entrepreneurship
- EAC – Entrepreneurship Awareness Camp is a 3 days duration training that exposes students to entrepreneurship as a career option
- STEDS – Science and Technology Entrepreneurship Development Scheme aims at socio-economic development of an area by optimising the usage of natural & human resources of an area.
- FDP – Faculty Development Program is aimed at training faculty members of S&T institutions so that they in turn can inspire students to take up entrepreneurial career options
- TEDP – Technology-based Entrepreneurship
Development Program is 6-weeks duration training developed jointly in
association with R&D institutions, CSIR labs etc. This training focuses on
specific products and technologies.
To boost the services and manufacturing sectors, the Govt. of India chalked out a separate SMSE department so that these industries could receive sufficient attention and support. The MSMED Act was passed in 2006 which aims at:
- Providing guidelines for skill development of employees, management and entrepreneurs
- Issue guidelines from time-to-time for ease of credit to MSMEs
- Work on minimisation of sick units and enhance their competitiveness through various support mechanisms
- Preference policy for procurement of goods or services by Central Govt. produced or provided by MSMEs.
- Resolution of delayed payment related issues
For dissemination of information, the Business Portal of India has been developed under the National e-Governance Plan of the govt. in association with FICCI. The portal provides various modules and sub-modules with respect to starting & running business in India. It also provides guidance on the paperwork required, taxation related information, trade related policies etc. Entrepreneurship is also promoted at the state government level through various schemes and subsidies varying from one state to another, the common mechanisms are:
- Infrastructural: development and management of industrial estates, priority in allotment of power/water connection, power subsidies
- Financial : Capital investment subsidies for new units set up in a particular district, seed capital /Margin Money Assistance Scheme
- Guidance: Consultancy and technical support
- MSMEs can continue enjoying the
benefits and preferences three years after they grow out of this category.
- The refinancing capacity of SIDBI has
been doubled to Rs 10,000 crore and an additional Rs 500 crore corpus will be
used for setting up a Credit Guarantee Corporation. 100 crore has been provided to India
Microfinance Equity Fund.
- Funds provided to technology incubators
located within academic Institutions and approved by the Ministry of Science
and Technology or Ministry of MSME will qualify as CSR expenditure
- Low-cost finance for clean and green
- SEBI to prescribe requirements for angel investors for them to be categorised as Alternative Investment Fund thus, awarding them pass-through tax benefits (ie taxation in the hands of the investors proportionately)
- Announcement on listing of start-ups on SME exchange without IPO will lead to better access to capital.
- Provisioning for 15 additional Tool Rooms and Technology Development Centres with World Bank assistance during the 12th Plan period
- Emphasis on skill and vocational training-led education for better employability will help in easing manpower woes in the future
- Announcement on Chennai-Bangalore and Bangalore-Mumbai corridor will give boost to establishment of more IT as well as non-IT entities in this belt Budget 2012 had a major hurdle for the angel investor community and in turn for start-ups as well. It was proposed that non-VC entities investing in a company where the investment is in excess of the fair value of the shares, will be taxed and his investment will be considered as income for the entrepreneur (Sec 56(2) of IT Act).
The World Bank’s "Doing Business" report presented a gloomy picture when India was ranked 166 among 183 countries covered. While it has been projected that India will be back at 8% GDP growth rate by 2015-16, this can happen only when there is a substantial increase in the number of start-ups which can help the economy accelerate. There are various challenges that entrepreneurs have to encounter which need urgent attention of the government such as
Uniform policy aligned towards entrepreneurial growth: Though there are efforts put in, they seem halfhearted as there is no clear cut policy. Supporting agencies such as financial institutions, incubators etc. lack a common policy framework that if adhered will lead to multiple start-ups.
Awareness of entrepreneurship as a career: Though there are some government bodies that are working towards creating awareness, their cause will get a thrust if some mass communication programs are designed and directed towards entrepreneurship awareness. The schemes run by the Government also need to be publicized so that more people can benefit from them.
Simplified Tax Structure: Implementation of Goods and Service Tax, a comprehensive tax system is pending. The current tax structure has multiple components and needs careful calculation. Introduction of GST would bring uniformity between state and central government taxes thus, simplifying the tax structure.
Infrastructure: Better infrastructure within faster timelines will help remove roadblocks that are now considered as hindrances to running a business successfully.
Rebooting of processes: Single composite application form needs to be introduced and single window clearance needs to be implemented making way for speedy initialisation of paper works and related processes.
Simplification of taxation: Collection of taxes through different government bodies and frequency of tax collection need to be consolidated. Faster implementation of the GST regime can be beneficial in this respect.
Mentoring and guidance: Forums need to bring in high quality faculty as also industry leaders timely guidance for the youth to help them overcome difficulties at various stages of running an enterprise.
National level incubation policy:
Incubators both of the nature of Public Private Partnership and private need to
be promoted for greater access to wannabe entrepreneurs. A better policy
towards incubation at the national level is fundamental to the growth of
entrepreneurs both quantitatively as well as qualitatively. Currently, there
are about 120 incubation centres in India most of which are government sponsored and are affiliated to educational institutes. This number needs to grow exponentially and reach the 1000 mark for incubators to have meaningful impact even in Tier II cities.
Information Dissemination: Create up-to-date information source for start-up entrepreneurs in the form of source books, web portals and widen dissemination of all relevant information. Lack of relevant and timely information forces entrepreneurs to take the help of intermediaries in understanding the essential aspects of starting a business.Incorporating the entrepreneurial mindset through educational system: The educational system needs to move from theory-based to practical-based learning with an aim to ignite inquisitiveness and innovation in young minds. Business education needs to have more emphasis on entrepreneurship and higher education system.