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Entrepreneurship- A double edged sword in India?

 Abstract

Entrepreneurs have to face various roadblocks while starting a new company in India. This article is about the problems faced by entrepreneurs and the reforms that are required to build a robust Indian economy. Young business minded aspirants have to look upon these challenges before starting any sort of business in India.

Keywords-Entrepreneurship, Bottlenecks, Reforms                                     

Introduction

“Government should play the role of afacilitatornot a regulator of entrepreneurship.” –Krishna Tanuku, Executive Director, Indian School of Business

Red-tapism has clogged entrepreneurship in India to its finest. The Scrupulous laws made it a double edged sword. Not only the laws but the poor labour market and the lack of quality mentors are becoming the “unconventional liquidation factors” for young entrepreneurs. Impaired government policies and byzantine laws are creating irrelevant suffocation in a green park. From creation of a company to its demise, everything is slow due to rigorous and comparatively inconsistent regional as well as national laws.            

BOTTLENECKS

  • Registration of a company-Incorporation of a company is very tedious and apathetic in our country. Here it takes almost 30 days to finish the registration process as compare to the 0.5 days in New Zealand, 3 Days in Singapore, 5 days in US and 15 days in Russia as we can see in figure1. The delay is generally due to lengthy list of legislation, licenses & permits and of course the corrupt bureaucrats.
  • Over regulation-Entrepreneurship should not be killed in order to protect consumer interest. Most prominent entrepreneurs and leading mentors in the corporate world believe that there are too many roadblocks for the aspiring business personalities. For instance, Indian online life insurance and general insurance comparison portal Policybazaar.com is facing the brunt of over regulation. The firm is allowed to earn maximum profit of Rs 10, whether a customer is buying a policy worth RS.1Lakh or more through their lead. “What is the need of a regulator to fix the cost of a lead, it should be left to market forces,” says Yashish Dahiya, 40, founder of Policybazaar.com.
  • Corruption-Corruption is chewing India’s economy brutally and corporate world is like some sweetener for corrupt officials. In a global index that ranks countries with least amount of corruption India ranked 94th.Sometimes, people pay money to just hasten processes and do not ask for any undue favours. According to a report by National Knowledge Commission, About 60 per cent of the entrepreneurs interviewed said they faced corruption at some time during their entrepreneurial journey while dealing with government procedure and officials.
  • Infrastructure-Companies faces huge losses due to delay caused by poor infrastructure of India. The facilities like roads, highways, railways, ports, airports, are in bad state causing high transport and supply-chain costs. The basic infrastructure of the country has to be robust in order to boost the economy to compete with the high end neighbors like Russia and China. It is clear from figure 2 that Ministry of entrepreneurship and skill development has to pay sincere attention to the basic infrastructure of the country.
  • Poor labor market-Lack of manufacturing capability in India has been attributed to red-tapism and corruption, but the low productivity of labour is also a big factor. Skill development has been a theoretical topic in India since ages. Most of the companies complain about the quality of labour India produces. Due to the low productivity of workers companies are “hiring slow and firing fast”.               
  • Winding up process-While opening a company in India is troublesome, liquidation is tormenting. India ranks 128 (of 183) in the ‘resolving insolvency’ WB Doing Business rankings. Even after presenting a liquidation petition to court it may take years to shut down the firm officially. Indian liquidation procedure is defunct, not merely dysfunctional.

Apart from the conventional problems above, entrepreneur faces several other obstacles like inflation, access to financing, tax regulations, instability in government policies, crime and theft, foreign currency regulations and poor public health. These regulations are forcing Indian entrepreneurs to set up their companies outside India, the finest example is Flipkart. Government recently introduced FDI policy which did not permit FDI in the B2C segment. Flipkart needed foreign investment to compete with giants like Amazon and so the only option was to split the company and take the technology end abroad and raise funds through an IPO at a higher valuation after divesting the risk that lay largely in the operational portion.

REFORMS

India’s progress is at a halt. For the continuous growth, we need to reform some of the conventional laws.

  • Foreign Direct Investment in B2C sector should be allowed to form a robust economic structure. Most of the developing countries are eating fruits of FDI where as India is still counting seeds.
  • Company laws should be simplified in order to facilitate aspiring entrepreneurs. It takes 13 long procedures to register a company in our company as compare to 3 in Singapore. Liquidation process should be completed within 3 months of the petition filed in the court.
  • Transparent system can control corruption on different stages. Everything should be online in order to avoid corruption, but evil of corruption can only be eradicated with moral high ground of entrepreneurs themselves.
  • Skilled labour force is a basic requirement for efficient production. Ministry of Human Resources Development can work together with the Ministry of Entrepreneurship and Skill Development to upgrade the skills of the workers by providing necessary vocational and technical training. Rural development will play a vital role in this context.
  • Robust Infrastructure is required for the operational environment. Paved roads, highways, better ports and airports will provide a stable supply chain. With India spending 13% of the total budget in infrastructure and trade, it’s a perfect time for the other reforms too. 

Conclusion

 From the legal point of view, India is not the best place to start a company but with the emergence of the Ministry of Entrepreneurship and Skill Development some reforms can be expected from this new business friendly government. “We will make it easier for entrepreneurs to set up businesses, thereby creating employment and strengthening India’s growth rate. We will also create an ecosystem that fosters entrepreneurship and makes it easier for entrepreneurs to obtain licenses and permits for their businesses. “-Sarbananda Sonowal, India’s first Union Minister for Skill Development and Entrepreneurship. If the above reforms take place in a legitimate manner, entrepreneurship won’t be a double edged sword in near future.

By: Tarun Budhwani

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