Open for Business? Why Indian Entrepreneurs Need a Hand

The environment for micro, small and medium-size enterprises — which together take up nearly 9% of India’s GDP in 2009 — needs to power up if the nation wants to continue to capitalize on its celebrated entrepreneurial spirit

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Sanjit Das / Bloomberg via Getty Images

Tailors work in Shahpur Jat village in New Delhi on July 24, 2012. The Indian economy expanded by 5.3% in the three months ending in March from a year earlier, the slowest pace since 2003

Epic electricity outages are not the only challenges that small-business owners are up against these days in India. A white paper released by Gallup on Wednesday says the environment for micro, small and medium-size enterprises — which together took up nearly 9% of India’s GDP in 2009 — needs to power up if the nation wants to continue to capitalize on its celebrated entrepreneurial spirit.

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% 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% 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% 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.

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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. According to first-quarter results of the 2012 Gallup World Poll, the vast majority of small businesses in India employ under five people, and most say they don’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 says.

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% say corruption is widespread in the business community. With most venture capital going to tech companies, only 29% of aspiring entrepreneurs feel they have access to the money they need to get started, down from 37% in 2012 and almost 15% lower than the average for 20 Asian countries polled last year. Similarly, only 22% of would-be business owners in India have access to formal or informal training, compared with a 44% average across Asia.

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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.

MORE: Is India’s Government Killing Its Economic Miracle?

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nyaya
nyaya

You have hit the nail on its head. Indian govt has so many beaurocratic rules and corrupt people in the govt people cant be bothered to set up new businesses and work hard as young people cant afford to waste their time or money. Indian govt is doing a very good job of killing off any enthisiasm of its youth

Firozali A.Mulla
Firozali A.Mulla

On IT today. Hotmail still is the world's largest email service provider

with just over 325 million users worldwide. But that lead is shrinking with

upstart Gmail notching up 298.2 million users and old foe Yahoo Mail still

chugging along 298 million users, according tracking firm comScore. That's probably one reason why Microsoft chose to bid adieu to the

Hotmail brand and wipe the slate clean and start afresh with Outlook, what

Microsoft calls as "modern email for the next billion mailboxes". So,

how did Microsoft and Hotmail lose its edge in the battle of the inbox? Free

mail and Flowers Back in November 1995, Bill Gates' book The Road Ahead was published

with no mention of the word internet in it, recalls Bangalore-based

technologist Atul Chitnis. A significantly fatter edition with a special focus

on the internet was released the next year. "Earlier that year [1995],

Microsoft had released Windows 95 without internet support," says Chitnis.

The point Chitnis is making is that Microsoft did not have a clear-cut internet

strategy in the mid-90s. But when the Redmond giant decided to play the

internet game, it chose do so in a big way: a slew of acquisitions. Hotmail was

Microsoft's largest acquisition for a long time. In the last days of 1997, the

company signed a deal with Hotmail for an estimated $400 million. It was a

heady time. The dotcom boom was, well, booming. Everybody was talking about

"capturing eyeballs". The idea was to drive traffic to websites, which would then translate to

advertising and e-commerce revenues. And what better way to do this than buy

into a free email service (popularly known as free

mail) with its millions of users? Hotmail launched its free mail services on

July 4, 1996. By the end of 1997, Hotmail had over 9 million users. Around this

time, Microsoft was cobbling together an internet strategy which involved

driving traffic to sites like msn.com and travel portal Expedia (which it spun

off and exited later). The competition was already awake to the opportunity. In

October 1997, Yahoo bought a company called Four11, which offered a product

called Rocket mail (later became Yahoo mail). Companies like Lycos and Excite were also offering mail

services. Microsoft had snapped up Hotmail hoping that its 9 million user base

would boost the traffic flow to MSN and its other internet operations and that

would lead to more e-commerce revenues. I thank you Firozali A.Mulla DBA

Karuppan Gnanasambandan
Karuppan Gnanasambandan

It is very true. Micro and Small Enterprises are afraid of making any new investment and new recruitment. It is very difficult to satisfy the new laws like Food Safety and Standards Act, the new Service TAX etc. The corruption is on its peak. People are afraid of taking any risk. 

KR. Gnanasambandan

VP-TANSTIA