Challenges of Entrepreneurship Development in India

The Economic survey in 2019-20 using World Bank’s data on entrepreneurship stated that India ranks third in the number of new firms created. However, India ranks significantly lower in terms of intensity when compared with countries like UK and US. Between 2006 and 2016, the mean number of new firms registered per year per 1000 workers was 0.10 whereas it was 12.22 and 12.12 for UK and US respectively. A natural question that flows from such documentation is what factors contribute to such abysmally low numbers of entrepreneurial activity when the government of India is taking initiatives like “Startup India”.

Distribution is one of the major stumbling blocks for Indian entrepreneurs emanating from the dearth of access to basic physical infrastructure. For instance, take the Indian road network which is second only to the US but despite that 30% of the population lacks access to all–weather roads, translating into lower quality of work and increased costs to the distributor.

Furthermore, 70% of the Indian population lives in rural areas while the majority of entrepreneurs come from well–to–do backgrounds, this socio-cultural difference creates a vacuum between the innovative products being offered and comprehending the relevance of these products by the general public in day to day life. Penetrating Indian markets thus becomes difficult when a divide exists between providers and end-users of the product. In such a scenario having a deep and thorough knowledge base of social differences is what is required to steer through effortlessly in not just domestic markets but foreign markets too.

Entrepreneurial activity can also be hampered by excessive regulatory frameworks such as barriers to entry, taxation policies, administrative and compliance costs, and bankruptcy legislation among others which impede entry and exit of firms and increase costs of compliance. India still lags in providing an enabling business environment owing to unnecessary regulatory machinery and red tape, not surprising to comprehend that the World Bank’s ‘starting a business Ranking Index’ placed India at 136th position out of 190 in the 2020 report. The simple task of getting the company name registered can take several months because of a lack of an adequate database and ultimately delay the process of setting up a company. Also, a startup has to go through detailed compliances of the ministry of corporate affairs leading to unnecessary documentation.

Barriers to financing like availability of risk capital and access to these sources often inequitably impact small and medium industries. In the Indian context lack of awareness of funding sources and the limited role of venture capitalists pose additional inherent challenges in the financing of SMEs. As a matter of fact that banks form the number one source to access finance, RBI advised commercial banks to review their lending structure and included provisions for sanctioning of additional working capital, standby credit facility, etc. amid the COVID pandemic to help the SMEs stay afloat but mass unawareness about banking practices and relief products is what seriously ails SME entrepreneurs. Taking efforts to be aware of the latest regulatory guidelines should be the mantra in such turbulent times. 

These issues not just work heterogeneously but there exists cross–functionality between these conditions for a much worse blow to small and medium industries.

Yamini Lamba


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