The path to becoming an entrepreneurial nation is not only an economic affair but also a cultural journey on which entrepreneurs should be allowed to try, fail and bounce back
The Global Entrepreneurship Index (GEI) of 2018, a composite indicator of the health of entrepreneurship ecosystem, has placed India at 68th position out of a total list of 137 countries, with the US bagging the first position. This is by far the best ranking of India, having jumped from the 73rd rank in 2012. The GEI measures both the quality of entrepreneurship and the extent and depth of the supporting entrepreneurial ecosystem and globally, GEI scores improved by three per cent when compared to last year with a 22 per cent increase in product innovation and 11per cent increase in startup skills scores, suggesting that global population is becoming more educated and identifying more opportunities to create new products.
With an overall GEI score of 28 per cent, India has a long way to go to reach the top 25. However, we as individuals, institutions and policymakers should work together to address and find ways to resolve the weak links of Indian entrepreneurship like technology absorption, networking, cultural support, strategies for high growth and availability of risk capital.
One of the weakest areas of Indian entrepreneurship is slow technology absorption. In the modern knowledge economy, information and communication technologies (ICT) play a crucial role in economic development. Absorption of technology, acquisition, development, assimilation and utilisation of technological knowledge and capability by a firm, and the diffusion of new technology is vital for innovative firms with high growth potential. A report released at the India Mobile Congress 2017 states that while the overall internet penetration in India is 33 per cent, it is only 16 per cent in the rural areas and according to the Cellular Operators’ Association of India (COAI) IMC-Deloitte report, India currently ranks 36th, globally, in internet inclusion based on availability, affordability, relevance and readiness. India also lags behind many countries in broadband penetration with only 23 per cent subscribers in August 2017.
Although, usage of technology is increasing overall, it has to still percolate to individual entrepreneurs, specifically in rural areas. There are numerous ways in which small entrepreneurs can use technology to boost their business and can learn from best practices from developed nations. Small entrepreneurs can use websites like Facebook, Twitter and linkedin to generate business leads and expand the business. Technology is enabling young generation entrepreneurs to shed their physical offices and set up virtual offices, complete with receptionists and a brick and mortar address. Cloud computing is another cost-saving innovation, which allows businesses to operate online without having to maintain their servers, routers and other expensive hardware. Technology should become the weapon to bridge the gap between the urban and poor and the skilled and unskilled labour. For a developing country like India, advances in computing power, connectivity, artificial intelligence, biotechnology and Geographic information system (GIS), and newer, more capable technologies hold tremendous promise.
Inclusive agriculture, rural growth and structural transformation from agriculture to high-productivity manufacturing and other economic sectors can be accelerated, as technological change transforms individuals’ lives and enables developing countries to progress at speeds previously inconceivable. To encourage technology absorption at grass root levels, Government should strengthen the physical and technological infrastructure and provide additional incentives in terms of subsidies or lower tax rates for proper usage of technology that could promote quality, productivity and efficiency.
The availability of risk finance, particularly equity rather than debt, is an essential precondition for fulfilling entrepreneurial aspirations that are beyond an individual entrepreneur’s personal financial resources. It is of high importance for any nation to develop deep and liquid stock markets, an exuberant primary market and a stable debt market, which in turn provide entrepreneurs easy and sustainable access to funds and policymakers should focus on creating this environment. For example, recently the stock market regulator Securities and Exchange Board of India (SEBI), considering the recommendations of the NR Narayan Murthy Committee, has eased the regulations governing investment in angel funds, by increasing the upper limit of number of angel investors in a scheme (fund) to 200 from 49, besides allowing these funds to invest in start-ups up to five years, thus enabling more fund infusion in start-ups. SEBI also eased the norm for minimum investment requirement by an angel fund in a venture capital undertaking to `25 lakh from `50 lakh, as high initial investment was also a major constraint for a number of angry investors (angel investors). Reducing the lock-in period of these investments from three years to one year would also witness an increased flow of investments into start-ups.
Similarly, the move to allow startups to raise 100 per cent funding from Foreign Venture Capital Investors (FVCIs) through convertible note is a great initiative by the Government. This initiative will help many start-ups to get access to much-needed capital and side step cumbersome procedural issues.
The third question of entrepreneurship that needs attention is: Does an average entrepreneur want to grow or is he/she happy with lower growth trajectory, as being a high growth company does not accrue any benefits. On the contrary, high growth businesses are taxed at a higher rate and are burdened with regulatory and compliance issues.
An economy will benefit tremendously if there is an entrepreneurial intention to develop a high-growth business that intends to employ at least 10 people and plans to grow more than 50 per cent in five years combining high growth potential with a sophisticated strategy and growth specific venture capital finance.
The fourth aspect that needs attention to make India an entrepreneurial economy is developing the networking skills of an entrepreneur that combines personal knowledge with an ability to connect with others in a country and the whole world. This combination serves as a proxy for networking, which is a very crucial ingredient of successful venture creation and entrepreneurship. Entrepreneurs who have better networks are more successful, can identify more viable opportunities, and can access more and better resources. According to a study released by Economist Intelligence Unit and reported by Forbes, informal professional networks and communities are more important for entrepreneurial success than formal structures such as incubators and accelerator and for 78 per cent of startups, networking is vital to entrepreneurial success.
The culture of the country is also a big determinant for it to become an entrepreneurial economy. Cultural values indicate the degree to which a society considers entrepreneurial behaviours, such as risk-taking and independent thinking, to be desirable. Several well-known culture specialists and researchers like Hofstede, Herbig & Miller have shown that cultures that value and reward such behaviour promotes a propensity to develop and introduce radical innovation, whereas cultures that reinforce conformity, group interests, and control over the future are not likely to show risk-taking and entrepreneurial behaviour. Corruption is also an inseparable part of the culture of any country. Social scientists and policymakers have long believed that economic corruption affects entrepreneurial activity as it erodes trust and hence increases the costs of doing business. The parties involved in entrepreneurial ventures have to invest not only in bribes and payoffs but also incur heavier costs of monitoring each other because of lower levels of trust. The path to becoming an entrepreneurial nation is not only an economic or technological affair but also a cultural journey where entrepreneurs should be allowed to try, test, fail and bounce back but are still respected by the society at large. In addition, the Government should facilitate institutions to provide networks and easy finance and stipulate overall policies to nurture and grow entrepreneurs and their innovative ideas into sizable businesses.
(The writer is Assistant Professor, Amity University)