Huge challenges for India’s “entrepreneurial ecosystem”Ranked Lowest in Asia

According to first-quarter results of the 2012 Gallup World Poll, the vast majority of small businesses in India employed under five people, and most said they didn’t plan on adding any more employees in the next year. “India needs more businesses — but only those that satisfy an existing demand and that create jobs for people other than the business owner and his or her immediate family,” the report said. Will this situation change and by when will it change, because it is a matter of changing the entire “entrepreneurial ecosystem” ? These are some of the questions hanging over the future, which, going by other findings of the poll, points towards huge challenges that need to be overcome. Lets get an idea of some of these challenges against the backdrop of the Gallup poll findings. The white paper released by Gallup points out that epic electricity outages are not the only challenges that small-business owners are up against in India. The paper says the environment for micro, small and medium-size enterprises — which together took up nearly 9 per cent of India’s GDP in 2009 — needs to power up if the nation wants to continue to capitalize on its celebrated entrepreneurial spirit.

Why do only 16 per cent of Indians report owning their own informal and formal businesses? What’s stopping these millions from striking out on their own? Despite their ambitions and business sense, nearly 40 per cent of those polled report that the prospect of starting a business is simply too risky, a feeling that the polling organization says comes from a combination of the perception of widespread corruption, lack of education and a dearth of legal protection for small-business owners.

The world’s largest democracy has an underutilized resource: a large, young and determined population. Over half the 1.2 billion people who live in India are under 25, and, according to Gallup polls, nearly 60 per cent of the population have personality traits that the polling organization categorizes as “critical for success as an entrepreneur,” such as being business-minded, optimistic or determined to succeed despite obstacles. Why, then, do only 16 per cent of Indians report owning their own informal and formal businesses? What’s stopping these millions from striking out on their own? Despite their ambitions and business sense, nearly 40 per cent of those polled report that the prospect of starting a business is simply too risky, a feeling that the polling organization says comes from a combination of the perception of widespread corruption, lack of education and a dearth of legal protection for small-business owners.
As a result, 20 years after India’s process of liberalization began, state-owned enterprises and old conglomerates still control a larger share of the Indian economy than the businesses that started after the reforms. Overall, the nation’s “entrepreneurial ecosystem” ranks among the lowest in Asia, says Gallup. Nearly half of Indians polled think the government makes it hard to start a business, and an overwhelming 72 per cent say corruption is widespread in the business community. With most venture capital going to tech companies, only 29 per cent of aspiring entrepreneurs feel they have access to the money they need to get started, down from 37 per cent in 2012 and almost 15 per cent lower than the average for 20 Asian countries polled last year. Similarly, only 22 per cent of would-be business owners in India have access to formal or informal training, compared with a 44 per cent average across Asia.
The paper concludes by encouraging policymakers to think about ways to better utilize Indian citizens talent and ambition. Its authors point out how people’s perceptions of government corruption improved after the Supreme Court cracked down on the illegal issuance of telecom licenses and says how this kind of reform, while it may have the short-term effect of slowing down the informal sector, will ultimately encourage legitimate businesses — and the Indian economy — to thrive.

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