Indians have the talent and attitude to become successful entrepreneurs

Entrepreneurs have contributed to India's vibrant and growth-oriented economy since its economic liberalisation in 1991. Two decades later, Gallup research shows that entrepreneurship still has a huge unreleased potential . So what is standing in the way of India's micro, small and medium enterprises (MSMEs)?

A 2011 Gallup study of 20 economic entities in Asia showed that India ranked in the bottom quartile on several important indicators of a well-functioning entrepreneurial ecosystem . Although cross-country comparisons might not be ideal because of Asia's diverse economies, governance models and cultures, a bottom quartile ranking across a majority of indicators is alarming.

Sixteen per cent of Indian adults said they own a business, as of March 2012. Half of them worked alone and another 47 per cent had five or fewer employees. The majority of these could be classified as unproductive entrepreneurship or destructive entrepreneurship - with zero or negative net effects on gross domestic product - and many are typical micro and small individual or family businesses.

In short, India needs more businesses that satisfy an existing demand and create jobs for people (other than the business owner and his/her immediate family) and stimulate GDP. But among Indian adults who are not business owners, only nine per cent have thought about starting their own business.

Successful entrepreneurial ecosystems need a balance of two qualities: individual variables, primarily talent and attitude, and contextual variables, such as the role of government and access to information.Recent research has found India ranked in the bottom quartile on external entrepreneurial factors such as government support, culture, social capital and access to training. Yet intrinsic factors - such as entrepreneurial talent and attitude - are plentiful. Contextual support is vital to entrepreneurial success and lack of it hampers the MSME sector in India. Of particular concern are the following four problems:

Lack of reliable support from honest and efficient government institutions. It is not easy to start a business in India - in the Gallup study, 46 per cent of Indians say the government makes it hard to start a business, while 26 per cent think the opposite.



To some degree, widespread corruption might cause low efficiency and high business startup costs. Since 2006, more than 70 per cent of Indian adults have said that government corruption is widespread. More than six in 10 agree that corruption is widespread in business; this perception is particularly high among current business owners (72 per cent) and those planning to start a business in the next 12 months (80 per cent).

Too little diversified, localised funding at the initial stage. Nearly three in 10 (29 per cent) aspiring entrepreneurs, who plan to start their business in the next 12 months, say they have access to the money they need - down from 37 per cent in 2011. This is significantly lower than the average for all 20 Asian economic entities Gallup polled in 2011 (44 per cent).

The key problem seems to be also about getting the right type of funding. The majority of existing venture capital funds for startups are focused on export-oriented IT or mobile solutions, and few seem to facilitate startups for the massive domestic market, particularly in the growing health care or energy sectors. In addition, seed funding at the initial stages is scarce, as is opportunity for entrepreneurs to learn from investors' expertise.

Little access to training and mentorship, particularly in rural areas. Part of this problem is a reflection of the education system. India has taken significant steps to promote entrepreneurial education and has established national institutions to provide special training to entrepreneurs. But apart from mentorship, only 22 per cent of aspiring entrepreneurs have access to formal or informal training to start a business, much lower than the Asian average of 44 per cent. That is not enough to meet the nationwide demand for entrepreneurship training and in rural areas, residents have little chance to capitalise on these opportunities. Even informal educators are hard to find. Only 37 per cent of current business owners and 28 per cent of Indians who plan to start their business in the next 12 months know people who can give them advice about managing a business.
 
Agreements are not always enforced: The time needed to enforce contracts in India is almost three times the average among Organisation for Economic Co-operation and Development (OECD) countries and the cost of doing so is almost double the OECD average. Indian entrepreneurs, often strapped for cash and time, are almost powerless when business partners do not operate honestly. Currently only 16 per cent of Indian adults believe they can find a non-relative who will be a trusted business partner.

Despite the contextual barriers, Indian entrepreneurs still rank fairly high on individual talent compared with other countries in Asia. It indicates that they could succeed if given contextual support.

In the short term, formalisation of and transparency in governance procedures could demoralise rent-seeking entrepreneurs who grow businesses informally or illegally, causing a decline in entrepreneurship. But this will reduce unproductive or destructive entrepreneurship, and prepare the country for productive entrepreneurship.

Ultimately, any improvements will require long-term joint efforts by policymakers, thought leaders, practitioners, and experts from the entrepreneurial community.

The authors are senior consultants at the Gallup Organization