Archive for September, 2012

Building Highways of Entrepreneurship

Entrepreneurship is widely accepted as a key engine of future growth of India. Over the next decade, it has the potential to create 2500 successful high growth ventures, with combined revenue of over Rs 10 lakh crore, and to generate 10 million direct & 20-30 million indirect jobs. This cycle has been set in motion over past few years with emergence of first generation entrepreneurs, increasing availability of capital, and strengthening of the ecosystem.

However, the process infrastructure for creation of high risk and high potential companies remains underdeveloped. Originally designed with the objective of containing the impact of failures and malafide intent, regulations and processes for setting up, operating, and exiting a business remain time-consuming and complex. According to the World Bank “Doing Business 2012” report, India ranks 132 out of 183 countries in ease of doing business.

Today’s entrepreneur is often a first-generation entrepreneur, and does not have the family business support to deal with this complexity. Such processes not only slow down entrepreneurs when building a business, but also create immense overhead if a business fails – where the same time and energy might have been spent more productively towards another business or occupational pursuit. This, in turn, deters individuals from starting their own businesses in the first place.

Interestingly, the one experiment with easing business regulations and processes in form of the STPI scheme, has shown flying colors over past decade. This scheme was essentially centered around single window clearance and self-compliance mechanisms, and enabled creation of a multi-billion dollar industry in quick time. Entrepreneurs also demonstrated high degree of integrity in availing the benefits offered, thereby justifying the trust reposed in them through a self-regulation process. There is an opportunity to replicate that success in other industries by streamlining processes.

Following are the key recommendations of the Planning Commission Committee on Angel Investment and Early Stage Venture Capital in this area:

1. Establish “Single Window Clearance” mechanism for starting a business, and establish time-bound processes for the same.
2. Set up online information and application portal for processes relating to doing business.
3. Permit self-regulation and self-compliance for businesses with turnover less than Rs 25 crore. Stringent penalties may be used to prevent potential misuse.
4. Facilitate labour law reform and ease compliance norms with labour laws. This is essential in triggering entrepreneurial activity in core sectors.
5. Ease investment and exit norms for equity investments into early stage ventures.
6. Establish expeditious procedures for closing of businesses, thereby bringing down the time, cost and complexity of doing so.

If implemented well, these steps will reduce the barriers to creating successful startups, and allow a broader set of people to participate in entrepreneurship. Indian entrepreneurs are charting a high growth trajectory, which could have tremendous impact on the country’s future. They have also demonstrated their ability and commitment to be disciplined and to follow the rules. It is time now to clear the potholes and build the highways of entrepreneurship.

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