Financial Daily from THE HINDU group of publications
Thursday, Sep 29, 2005
Time for an entrepreneurship policy
This strategy, however, has not delivered. Agriculture and the rural sector, in general, have not been able to absorb surplus labour. Such is also the case with the industrial sector. This has to do with the generally low growth rates recorded by these sectors in recent years. The trends suggest that the two sectors together may not contribute more than 4.5 per cent to overall growth a year in future. The services sector alone has contributed on average about 3.5 per cent to overall growth since the 1990s. It has the most potential to provide much more employment as the sector is large and represents all activities that are outside the commodity producing areas.
Employment for the educated elite
Most of the recent initiatives in the services sector, however, have centred around creating employment for the educated and highly skilled labour in information technology and telecommunications areas. The supply of such skilled labour, facilitated to a large extent by the highly subsidised higher education in India, has helped some of the employed in this sector become entrepreneurs. Many such entrepreneurs quickly became small and medium scale industrialists and some scaled up to acquire wealth comparable to those in the traditional large-scale industries.
The success in IT and telecommunications has helped the country in many ways such as increasing exports of services, facilitating the entry of venture capitalists, and catalysing a change in thinking about the use of computers in schools, colleges, public sector offices and even small enterprises/trading establishments. However, much of the use of computers has remained in cities and towns and created a great social divide between the English-speaking and those educated in regional languages and between the rural and urban populations. The employment creation due to the IT revolution seems to have made little difference to the total number of the unemployed.
Looking beyond IT
One may have to, therefore, look beyond the IT and telecommunications to create employment. Thus, it may be worthwhile looking at a well-designed entrepreneurship policy (EP) which could be broadly understood to stimulate and develop entrepreneurial activity based on an integrated framework consisting of culture, choice of occupation irrespective of social stratification, resource availability to entrepreneurs and the extent of opportunities available to entrepreneurs. In the literature on EP, however, an impression is at times given that it is essentially innovation-centric but there is no reason why one cannot view EP in broader terms especially in the Indian context.
First it is essential to be clear that EP is not the same as the SME policy, though they are interrelated. For, the implementation of the former requires the presence of a broad set of institutional participants such as educators, media, government entities and civil society organisations in support roles, whereas the SME policy can be implemented through a few institutions such as development agencies or financial intermediaries.
The EP focuses on individuals unlike the SME policy that emphasises on firms. As such, the EP focuses on supporting the needs of people as they move from the early stages of the process of entrepreneurship, say, from the very stage of intent to start a business, to pre-start up and early post-start up. This process would generally be long. Besides, the embedded stages cannot be clearly demarcated. The EP, therefore, requires mentoring and active promotion. The policy perspectives have to be different from those related to the SME policy. Let us cite a sample of them.
Foremost is access to information, advice about marketing, and access to micro-loans, seed capital and any other financing needed for a start-up. Identifying those who turn up to have these facilities as potential entrepreneurs requires some careful analysis. This should go hand-in-hand with tax exemption for the initial few, say, five, years. Next, is the need to let the new entrants learn the process of entrepreneurship and skills by providing them with training about the new and emerging technologies. Finally, the new entrants would have to be facilitated with interfacing with SMEs or large enterprises about integration and networking. The above policy perspectives have to be handled at the micro level. The administrative organs of the region generally do not have information about start-ups and marketing possibilities. This is more so in rural and surrounding areas and in respect of women entrants. The Centre is simply not cut out to handle such tasks.
It is highly doubtful if the entrepreneurship development institutes in India, which are easily comparable with similar organisations elsewhere in the world, would be of much help. Non-governmental organisations, on the other hand, could give information on start-ups and marketing in select areas, though their effectiveness would be contingent on the cooperation of local administrations, local socio-political workers, and micro-finance institutions.
The entrepreneurship development institutes in India, however, could train persons about the process of entrepreneurship and about the new skills required to be in consonance with the emerging technologies. But, as a matter of routine, they would not be in a position to facilitate dialoguing and networking by the new entrants.
Financing institutions would be helpful provided they take the initiative of reducing the procedures and relaxing the lending norms so as to give the new entrepreneurs confidence about their success and of their accountability.
The Grameen Bank experiment of Bangladesh gives proof of the effectiveness of such an approach. While India's policy thinkers have a number of promising perspectives on making micro-loans a tool to promote employment and reduce poverty, there are still a number of concerns. The perspectives still depend largely on the existing organised public sector banking structure.
Besides there are concerns about regulation and governance of micro-finance institutions. Moreover, the implications of preponderance of micro-finance institutions for the emerging polity are not known.
The above limitations, however, cannot be overcome simply by having large data collection. Education and training and media expose also cannot be very effective without support mechanisms in the form of improved governance and building of institutions.
Designing such an overarching strategy is not going to be easy: For, it depends on the willing cooperation and resources of a number of stakeholders in society administrators, financiers, social workers, educators, entrepreneurs, technologists and social scientists.
There are no alternatives now to trying out a comprehensive strategy of having a sound EP. The authorities and stakeholders would have to widely disseminate the content and workability of such a strategy because the need of the hour is to improve not merely the size but also the quality of economic growth.
The EP has to be made harmonious not just with the SME policy but also with others such as the agricultural, general industrial, education, institutional and foreign investment in order to help reduce joblessness and improve efficiency in the use of resources. This would, in effect, mean reworking the development strategy for the medium to long term.
(The author, a former Executive Director of the Reserve Bank of India, can be accessed at email@example.com)
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