Knowledge-intensive sectors might be the future growth drivers of the Indian economy but when it comes to financing such ventures, there has been no improvement in bank finance, in case of entrepreneurs who started ventures after 2000, says a report titled ?Entrepreneurship in India? by the National Knowledge Commission. Moreover, there is a widely held perception among entrepreneurs that it is very difficult to get bank loans at the start-up stage while it becomes comparatively easier at the growth stage.
According to the report, 63% of the entrepreneurs were self-financed, while other sources included banks, venture capital (VC), angel investors and state finance corporations. Out of the total self-financed ventures, 47% are started by funds borrowed from family and friends, 31% are outcome of own savings and 22% are family run-businesses. As against this, the overall role of banks, VCs and angel investors continues to be highly underexploited for the advancement of entrepreneurial activities in India, says the report.
Interestingly, an overwhelming 99.4% of the entrepreneurs did not want to be in a routine job while 74% of the entrepreneurs received family support, underscoring its crucial significance. Underlining the critical success factor for such ventures, 95% of the entrepreneurs feel education is a key trigger to evoke entrepreneurial inclinations. However, only 16% chose a specific sector as a result of their educational background. One major determinant for growth of entrepreneurship is the availability of adequate number of skilled human resources, people who can take advantage of the opportunities provided by a growing economy at the local, national and global levels. Nearly 50% entrepreneurs considered skill shortages in recruitment to be a problem of average importance, 33% considered it somewhat difficult or very difficult to find candidates with the right skill. More than a third of the entrepreneurs faced problems in accessing as well as retaining employees generally, it says. Hence, there is a need for increase in supply of high-skilled as well as low-skilled employees.
On top of this, problems of statutory clearances and licences are few of the many problems that are faced by entrepreneurs in India. 50% of the entrepreneurs experienced difficulties while seeking statutory clearances and licences. Two-thirds faced hassles while filing taxes and 60% claimed to have encountered corruption. The official costs of starting a business in India are high and the process quite complex, involving no less tan 13 procedures, says the report.
Another hurdle was in accessing reliable information on registration procedures, finance and other schemes. The lack of readily available information compels new entrepreneurs to employ intermediaries to advise them on essential aspects of starting a business, thereby incurring additional costs, says the report. According to the report, banks such as SIDBI and/or private players should examine the feasibility of Venture Debt, which combines traditional debt options and venture capital, to help knowledge-based start-ups move from idea to market in the least possible time.
Practices like promoting PPPs that typically provide start-up capital should be promoted, similar on the lines of Small Business Investment Company in the US. Moreover, it says that a specifically designed stock exchange for smaller companies will ensure visibility, help these companies in accessing additional capital, create a market with a public value for its share and also help to broaden the shareholder base. While, there is a need to significantly increase business incubation for entrepreneurship by comprehensively exploring policy options to improve access to financing, synergies between education, innovation and entrepreneurship should also be encouraged.
According to the report, priority should be given to the MCA-21 project, started by the ministry of company affairs, to fully automate processes of enforcement and compliance. Other suggestions to enhance entrepreneurship includes meaningful implementation of the single window system, introduction of a single composite application form, introduction of a single unique company number, reduction in frequency of tax payment from monthly to quarterly, creation of specialised commercial courts, introduction of limited liability partnerships and creation of one-stop-shops to provide all relevant information needed to start an entrepreneurial activity.