Entrepreneurship is not for the faint hearted with the odds of success stacked against you : 1 out of 10 start ups succeed. While stories of Flipkart, OYO, Ola and Facebook dominate the press no one talks about the failures. An entrepreneur risks his capital, toils a 15 hour day and devotes the best years of his life to his company. And it is the SME sector that is the real driver of the economy and the second biggest employer after agriculture. In fact the only sector capable of employing the 12 million young jobseekers who enter the job market every year.
Ease of doing business index is a World Bank standard which compares regulations across 190 countries to assess how easy or hard it is to do business in a country. The criteria cover the ease of registering a new business, construction permits, simplicity of the tax regime, electricity connection and contract enforcement among a total of 10 indices. While India’s rank in the Ease of Doing business improved by a dramatic 23 places from 100 to 77 in 2018 and an equally impressive 30 positions in the previous year, a lot remains to be done.
It takes more than 100 clearances to build a 500 MW power plant or a large hotel and any one of them can stop the project. Complex tax returns and ever changing GST regulations add to the cost. Tax litigation typically takes 5 to 10 years to resolve. And God help an entrepreneur whose business fails. Businesses can fail for many legitimate reasons in a changing environment. Instead of building a climate which encourages startups to take risks and try out innovative ideas, Tax and bank officials descend on the hapless entrepreneur of a failed unit for recovery. Add to this mix an archaic Factory’s Act 1948 which weighs 1 kilo and is packed with unnecessary regulations. This maze of over regulation does not help the consumer, the entrepreneur, the government or the workforce – it only paves the way for the inspector to celebrate a Happy Diwali at the expense of the nation.
It is not difficult to understand why the brightest talent and the best ideas relocate to Singapore and Dubai. Governments in South East Asia are now offering a range of mentorships, seed funding, fast regulatory clearances, and a proactive approach to solving problems. Singapore has a tax rate that is half of India, superb infrastructure, zero corruption and a regulatory system in which it is easy to enforce contracts. 1 in 7 startups in South East Asia are started by Indians.
If this flight of talent and capital is to be reversed the starting point is a national level recognition of entrepreneurship and business at large and the role it plays in nation building, employment generation and poverty reduction. National awards like the Padma Shri recognize sportsmen, doctors, actors, politicians, social workers but rarely entrepreneurs who are the unsung heroes of the nation. A recalibration in the mindset of the entrenched bureaucracy from a “regulatory” to a “promotional” approach is a first step. Unless they start seeing entrepreneurs and the business community as nation builders who bring prosperity and jobs, India will not be able to make the kind of progress our East Asian neighbors have made in the last few decades. The nation needs more entrepreneurs and fewer bureaucrats, more factories and less factory inspectors, and a simplification of the archaic regulatory framework.
(The writer is the founder of Partners4Growth, which consults to family managed companies helping them manage internal conflict. He also advises business families on Strategy, Structure & Succession Planning and is a speaker at Family Business Forums.)