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Doing Business in India: What Helps, What Hinders
A holistic approach to developing entrepreneurship can bring major changes to the socio-economic landscape of India.
According to the Global Entrepreneurship Monitor (GEM) 2021/22 report, India is one of the top 5 places to do business. A global consortium of more than 500 researchers was involved in this report that considered different conditions of the entrepreneurial framework to gather data of respondents across all low, medium and high-income economies. Respondents were asked questions on entrepreneurial activities, view of the local entrepreneurial ecosystem and attitudes to enterprise.
“The GEM report put India on the top amongst low-income economies (according to GDP per capita) on different Entrepreneurial Framework Conditions such as Entrepreneurial Finance, Ease of Access to Finance, Government Policy: Support and Relevance; and Government Support: Taxes and Bureaucracy; while Government Entrepreneurial Programmes was ranked second highest”, according to Business Standard.
However, as much as the numbers have reflected an improved entrepreneurial ecosystem, growth expectation remained low among over 80% of entrepreneurs and the general population’s entrepreneurial intentions are still mute. This isn’t surprising if you just see the difference in documents and permissions required to obtain licences for a restaurant business compared to that of a firearm.
Mint wrote, “According to Sanjeev Sanyal, the Principal Economic Advisor to the Government of India, getting the go-ahead from the police was one of 26 licences needed to open a restaurant in the Indian capital. An entrepreneur wanting to start a restaurant business in Bengaluru needs 36 licences while those in India’s financial capital Mumbai need 22.”
Although India’s massive population and the increasing spending habits of the middle-class are generating entrepreneurial excitement and attracting foreign investments, it’s essential that entrepreneurs are aware of the challenges in order to plan strategically and work patiently and diligently.
Advantages of doing business In India
In the survey, 82% respondents believed in the ease of starting a business in India, 83% believe good opportunities are available and 86% believe in their knowledge and skills to start a business in India.
Let’s look at some advantages of doing business in India:
Scope for sustainable business
Development plans and a growing population means that businesses will only grow in India. A rural to urban transition will increase the portion of the middle-income strata, creating more business opportunities for companies to sail through.
India has a strong labour force, mostly of individuals younger than 30 years of age. India’s low average age of working individuals and their ambitions can be leveraged by businesses to generate employment and boost productivity.
Economical operational costs
From infrastructure to taxes, the cost of running a business in India is low and affordable. Businesses can provide capital, strategic knowledge and technology to their workforce and capture a customer base for their products and services.
India’s robust democracy, private consumption, government investment and structural reforms have been key for India’s economic growth in the past decades, helping it achieve a high macroeconomic stability ranking.
The Indian government has eased restrictions on Foreign Direct Investment (FDI) which have attracted more foreign investments and newer reforms have improved the business environment. While praising this achievement, Junaid Ahmad, World Bank Director in India said, “India’s impressive progression in the Doing Business rankings over the past few years is a tremendous achievement, especially for an economy that is as large and complex as India’s”.
India is a powerhouse in global technology innovation. Companies across all industries are equally sophisticated and prominent as their international counterparts in China and the US.
Massive consumer market
India has the third-largest market size out of 141 economies and the largest market for manufactured goods and services. With a large, spending middle-class, the total consumption expenditure of India is estimated to grow to $6 trillion by 2030.
Presence of a startup ecosystem
The culture of business in an economy is crucial for new companies. The Indian market accepts new business ideas, letting them enter the market easily, especially in the fields of financial services, e-commerce and technology.
Due to the Covid-19 pandemic, over 77% entrepreneurs are seeking new opportunities due to the possible long-term positive impact of the pandemic.
Need for reform
Here are the areas where reform is needed to improve the standing of the Indian business ecosystem.
Ease of doing business
India’s process of starting a business, registering property and enforcing contracts is laborious, time consuming and costlier than other Organisation for Economic Co-operation and Development (OECD) nations. According to The Print, “Entrepreneurs on social media have been listing pain points of sustaining businesses in India, noting the many compliances and how digitisation hasn't made processes particularly easy. Multiple compliances, large volume of paperwork and a hostile environment are some of the reasons behind the unease of owning small businesses in India, according to entrepreneurs in the country.”
Protectionist policies and high tariffs
In order to protect domestic businesses, India already has high tariffs (highest among any G20 country) and trade regulations that are unpredictable and non-transparent. It has now increased import tariffs and plans to ban any product deemed detrimental to domestic businesses. India has also limited foreign ownership and brought in stringent requirements of local presence for future investors.
Vast but fragmented market
We already know that India’s market is vast and growing but its fragmented nature is a challenge for businesses and investors. Large states having nation-like populations, with diverse cultures, infrastructures, talent and languages, are further fragmented by rules, policies and regulations varying from state to state.
Even though tall claims of infrastructural developments are made, India’s network of railroads, seaports, roads and airways, power grids and telecommunication often hinder growth and service.
Safeguarding intellectual property
Enforcement of laws safeguarding intellectual property are often concerning even though they’re compatible with US and EU IP laws. Bureaucratic delays and lack of transparency are causes for inadequacy in protecting intellectual assets.
India needs support for scaling-up ventures and a change in culture to reduce the fear of failure.
“Thus, encouraging new start-ups in differentiated, knowledge-based high-value business services compared to consumer services may improve the development path of developing economies like India, paving a path to its USD 5 trillion economy ambition”, writes Business Standard.
Entrepreneurship is key to sustainable growth of the economy and creating opportunities for employment. Only a holistic approach to developing entrepreneurship can bring major changes to the socio-economic landscape of India.