Government should partner private citizens and expert groups in implementing schemes

In the recent Union Budget, the government announced that an investment by an individual into an Indian company would be treated as income from other sources, taxed at the rate of 30% on the difference between fair market value and the premium, with the assessing tax officer being the arbiter! This regressive measure led to a hue and cry being raised with the government agreeing to take a relook at this issue.

But what of the many thousands of crores that are allocated for entrepreneurship with no discernable impact? No hue and cry?

The Budget also announced the setting up of a R5,000 crore India Opportunities Venture Fund to help micro, small and medium enterprises (MSMEs). In addition, the government extended by five years weighted deduction of 200% on R&D expenditure as well as introduced weighted deduction of 150% on expenditure related to skill development of employees?a very welcome gesture.

Over the past several years, there?s been a Credit Guarantee Fund Trust for Micro and Small Enterprises (CGTMSE) that essentially offers collateral free-term loan and working capital credit to enterprises up to R100 lakh. The Fund essentially guarantees the lender that a significant percentage (65% to 85%) of the credit would be guaranteed by it.

These are but two examples of the plethora of schemes and thousands of crores made available each year by the Centre under different schemes and departments for a range of activities, including R & D, skill and technology upgradation, packaging, and even for travelling overseas for exhibitions.

The Centre also, for example, funds Entrepreneurship Development Institutes and provides for setting up incubators at educational institutions around the country under a department of science and technology (DST) initiative.

Yet the impact of these efforts is yet to be seen. It is not clearly for want of money or intent. The focus as in most government projects appears to be on outlays of money and not on outcomes. Most of these schemes are not well known; in fact, they appear to be closely guarded secrets for the most part, and not just to most of the intended beneficiaries but also to the institutions that have been earmarked for disbursals of funds! The paperwork required to access these funds is cumbersome and time-consuming, there?s a lack of any objective criteria for receiving funds, measurement criteria for determining progress don?t exist, and most importantly, a lack of appropriately qualified personnel on the ground who can work with these funding agencies in creating and managing implementable programmes on the one hand and with the enterprises on the other. Enterprises which receive the money need help in processes, technology, sales and marketing, hiring and the like. In the absence of these, outlays become the sole measure of ?success? of a programme.

Why doesn?t the government work in partnership with private citizens and expert groups that will help create objectives, measurement criteria, put together training and mentoring programmes, help create technology driven resource centres for sharing knowledge, practices, hiring and the like and help channelise the money in the most efficient and effective manner to the most deserving candidates? In addition, the government can play the role of a limited partner in a venture capital fund by selecting the independent fund managers based on track record, expertise and approach. The government can define the desired outcomes?development or financial as the case may be?and then pick the best set of fund managers to identify, support and grow the ventures to meet these desired outcomes.

The role of the government as a limited partner in private funds has been seen in the US (through the SBA?s SBIC programme), Israel?s Yozma effort and now even in Singapore. The Technology Development Board under the DST has taken some steps in this regard by backing some funds. Most of the money being invested in Indian entrepreneurial ventures is from overseas which clearly and rightly has its own priorities, assessment criteria and focus areas. Only a small percentage of entrepreneurial ventures get funded by funds in India while there are a vast number of ventures that aren?t able to access capital?that?s actually available ?and expertise?that?s also actually available. That?s a tragedy because it is India?s entrepreneurial energy that will propel it forward through the creation of jobs and wealth.

It is important to keep the old adage in mind: the road to hell is paved with good intentions.

Sanjay Anandaram is an advocate of entrepreneurship. He?s involved with Nasscom, TiE, IIM-B and Insead. Email: sanjay@jumpstartup.net