Feb 6, 2016

To kick start Start-Up India, poor entrepreneurs must be encouraged

These women selling vegetables on the pavement in Leh in Ladakh are also entrepreneurs.

If you had been to Leh in Ladakh you would have surely seen women in traditional attire selling vegetables on the pavements. Closer home, I am sure you encounter the rehriwala umpteen numbers of times during the day doing the rounds selling vegetables or your daily necessities. Walk into any market, and you will find people swarming around a rehri eating pao-bhaji or gol-gappas or chats.

One thing common about them is that they are all entrepreneurs.

I was reminded of the women in Leh when the Prime Minister Narendra Modi announced a series of sops and tax exemptions as part of the “Start Up India, Stand Up India” campaign for aspirational young Indians. Have an entrepreneurial mindset, improve your efficiency and empower yourself to make a difference goes the underlying refrain. And that makes me wonder, why are the policy makers unable to appreciate the spirit of entrepreneurship that lies largely untapped among the lower strata of the society. True economic growth is only possible if the social divide is bridged, not widened. Given the right kind of policy push, I am sure several million flowers in rural India would have also bloomed by now. Yes, you heard it right, several million. 

A Rs 10,000-crore endowment fund, income tax relief for first three years, exemption from capital gain tax, no labour inspection for three years, credit guarantee fund for startups, easy exit, self certification and a number of sops greet the young Start Up entrepreneurs. Thanks to the state largesse, newspaper reports point to top performers in a number of startups to see their pay packets doubling this season. High performers are expected to get a pay rise of 30-50 per cent.

Despite such massive subsidy support, the number of startups in India is only between 4,200 and 4,400 (third largest in the world) already providing employment for an estimated 80,000 to 85,000 people. An AFP news report (Feb 5) however is indicative of the bubble already showing signs of bursting with hundreds of layoffs at several Indian startups. It quotes Arvind Singhal, chairman of management consulting form Technopak: “The valuation bubble is bursting. The valuation had reached levels where they were ridiculous and could not be justified at any level.”

While what has gone wrong with startups is topic for another day, I take you back to the failure to appreciate and encourage entrepreneurship amongst the poor. Take the case of a poorest of the poor woman in a village. She has no land, works as a daily wage worker, and somehow manages to survive. To make a better living, she decides to buy a goat. By selling milk and raising the goat kids that she can sell off at a later stage she thinks she can make a decent living. She goes to a Micro-Finance Institution (MFI) to get a loan of Rs 7,000-Rs 8,000 to buy a goat. She gets the loan at an interest rate of 24 per cent on an average, and to be paid back at weekly intervals. At weekly repayment schedule, the interest rate effectively comes to 32 per cent.

This is hailed as a significant step in women empowerment. I wonder if a 32 per cent rate of interest can empower a poor woman, how come the well-to-do entrepreneurs in the urban centres need all the tax exemptions and government sops?

Compare this with the classic example of Punjab state’s benevolence bestowed on the steel tycoon Laxmi Mittal. According to a report in Indian Express, Laxmi Mittal was given Rs 1,250-crore by the Punjab government to invest in the Bathinda refinery. This was to be treated as a soft loan for 20 years, to be paid back at 0.1 per cent rate of interest. Film star Hema Malini got a 2,000 square metre plot worth Rs 13.5 crore for a mere Rs 70,000. Gujarat Chief Minister daughter Anar Jayesh Patel's business partners have got 250 acres of land at an official rate of Rs 15 per square metre, says a news report.

I am sure you will agree that if the poor woman too had got a loan at 0.1 per cent rate of interest, she would have been driving a Nano car at the end of the second year. Similarly, if the vegetable vendors in Leh had got bank credit at the same interest rate, and a small piece of land at the rate at which Anar Patel got the land, they too would have set up small pucca shops.

The poor are entrepreneurs too. They would have moved up the ladder in large numbers if suitable and appropriate schemes to encourage entrepreneurship were also carved out for them. They too can be part of ‘Stand Up India’ provided the government focuses on social inclusiveness to build up economic equality. Let us not leave the poor at the mercy of loan sharks – and then consider them suitable only for MNREGA activities. It is time to disband MFIs and use Jan Dhan Yojna to give the poor an easy access to cheaper credit. 

Social equality is at the very foundation for economic growth. We cannot discriminate among entrepreneurs just on the basis of where they come from. 

To kick start Start Up India, poor entrepreneurs must be encouraged. ABPLive. Feb 5, 2016

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