Bridgital Nation

by N Chandrasekaran

  When asked who his business role models were, Amit could not recall anyone from his district who had success as an entrepreneur. Garments exports did not even exist as an activity there, when he started off. The region had changed in the last decade, with newer factory and industrial areas popping up, and improved road and train connectivity. But the old ways of thinking hadn’t changed, he said. ‘In my village, shop owners, brick layers, builders—they have all inherited their parents’ profession. Practically everyone in my village works for ₹10,000–15,000 ($140–210) per month and that is considered a stable life. I tried encouraging my own nephew with offers of financial assistance and mentoring, but he doesn’t want to take a risk and start a business.’

  In the United States, Amit’s story would have been the very embodiment of ‘the American Dream’. In India, his story was not perceived as one of success but as one of a failure to get a job. It didn’t seem to matter that his apparel-manufacturing unit was a multi-storey building, employed fifty people, and had orders from across Asia and Europe.

  Niyati explained, ‘Even today our relatives say, “Oh good, you are managing, but how far will you go before it all comes down? You do not even have a son to inherit this. Better to have stuck to your job, at least you would have the leisure to enjoy your life on weekends.”’ She added, in a sombre tone, ‘Business involves you bowing down to circumstances and people in order to come out on top. It is not something our family members find palatable.’

  Big production units often make Amit tempting offers—a fancier house, a faster car and a stable job. But what they offer pales in comparison to the pride he felt the day his daughter distributed Diwali laddoos to his community of 200-odd well-wishers, dyers, embroiderers, traders, suppliers, buyers and employees.

  The level of grit, determination and occasional luck that is present throughout Amit’s story shows why people like Amit who find success as entrepreneurs are rare. Encouraging everywhere entrepreneurship would mean allowing more people to be successful without requiring the heroic levels of resourcefulness and courage that Amit and Niyati were forced to muster.

  If India is to become a nation where the Amits of the world can thrive, it will need a fundamental shift in how it supports and nurtures entrepreneurship. Amit describes his experience best when he says, ‘I wasn’t given wings to fly, so I had to keep inching forward.’

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  Embracing Everywhere Entrepreneurship

  Today, not enough people choose to become entrepreneurs—they are forced into it. Those who do, find that success is hard to come by. They lack access to the credit, markets, skilled labour and infrastructure necessary to expand their business, and hire more people. Compound all this with stubborn red tape, and it becomes easier to understand why entrepreneurs like Amit are rare in India.

  Making India a hub of everywhere entrepreneurs will be no easy task. It will require reforming institutions with the power to shape markets, and changing widespread attitudes about entrepreneurship, by making it something to aspire to.

  Other countries have walked this path before. South Korea and Singapore, for instance, adopted national industrial policies that focused on building a base of entrepreneurs. Rwanda adopted a national strategy that explicitly linked a sense of patriotism with an entrepreneurial spirit, using everything from national media campaigns to a mandatory entrepreneurship curriculum. 1

  It’s clear that a combination of education and exposure improves a country’s awareness and acceptance of entrepreneurship as a viable career path. For countries like India, the impact can be outsized. Research shows that the lower the starting point, the greater the effect education can have on a country’s ‘culture’ of entrepreneurship. 2

  The goal of an entrepreneurship education isn’t simply to make it more appealing, but to change the way students think. The right curriculum can improve non-academic skills such as creativity, persistence, teamwork, and can encourage comfort with risk-taking. These skills are crucial to success in a future of work that is likely to be deeply entrepreneurial in spirit. Arguably, they are also integral to citizenship and nation-building.

  WHAT COULD ENTREPRENEURSHIP EDUCATION IN INDIA LOOK LIKE?

  Entrepreneurship education is different from core school subjects which are traditionally teacher-led, and tested with exams. With entrepreneurship education, the focus is not as much on learning concepts as it is about building skills, such as the ability to collaborate and communicate. These skills cannot be taught and tested like core subjects, but can be developed through a learning-by-doing approach. The cultural mindset of students will have to be considered, and approaches need to be tailored by state.

  States like Delhi and Bihar are already experimenting with different approaches. In Bihar, for instance, ‘Going To School’, an NGO, is enabling government-run schools to deliver entrepreneurship education through stories, games and projects. The focus is to enable students to learn problem-solving by creating business plans. The impact of entrepreneurship education has been tangible. Grade 9 students believe that an entrepreneur is someone ‘who is fearless and is able to face any outcome’. A study revealed improvements of up to 6 per cent per year on the entrepreneurial skills children learned—creative problem solving, understanding business, and networking and collaboration.

  With education must come other structural changes over the long term. The roads that transport goods must be better, and the electricity needed to produce them must be easier to acquire. Much has been said about the shifts in policy necessary for credit access, labour, and regulatory oversight.

  The scale of the challenge regulations create for businesses is sometimes glossed over. Labour regulations in India have seventeen definitions of ‘workers’ and twenty-two definitions of ‘wages’. More than forty laws regulate labour—the condition of hiring and termination, wages, workplace safety and so on—at just the national level; several states have modified or introduced additional laws of their own. Each law, each regulation, comes with its own documentation requirements, inspections, clearances and penalties. 3

  Whatever reform path India decides to take, SMEs should find a place at the centre of new policy design. India is all too familiar with well-intentioned policies that have unintended consequences. For example, existing labour policy mandates a series of deductions from a formal employees’ gross salary, to ensure enough savings for retirement. The policy is well-meaning. However, the trade-offs are substantial in the arithmetic of lower-income workers, who may often need to forgo long-term savings in order to deal with immediate, daily expenses. They can view the potential 20 to 30 per cent difference between what they cost to a firm and what they get to take home, as a luxury they cannot afford—this becomes an incentive to work informally and negotiate the value of the monthly contributions as extra cash-in-hand. In effect, the structure ends up being a tax on formal employment. 4

  From where SMEs stand, these are the sort of laws and regulations that need the most urgent reform—the ones that stifle growth at the low end, making demands that few entrepreneurs are capable of meeting.

  Capturing India’s entrepreneurial spirit means a transformation of vision away from a culture of micro-management. The fact is that the country must embrace SME growth. Growth will come not from pushing hard, but from removing the obstacles SMEs face. Each hurdle would be problematic on its own, but together they turn basic economic activities into Herculean tasks that erode confidence and lead to a vicious cycle of low-trust interactions. These numerous obstacles can tilt the scales on whether it is worthwhile to start or grow a business.

  A certain level of judicious risk-taking accompanies this growth mindset. In response, SMEs require supervision, not suspicion. Smart risk management doesn’t force more control, more rules and more policies but improves oversight of existing rules, while simplifying them.

  This is the long-term vision that needs to take hold. To get started right away, we believe a technology-led approach can dismantle so
me of the obstacles SMEs face.

  Bengalurus Everywhere

  Compared with entrepreneurs across India, Bengaluru’s start-ups have it made. There’s finance available for every stage of a company’s lifecycle, specialized services for marketing and IT support, distributor networks, and a galaxy of mentors, advisors, peers and competitors. Even clients are only a traffic jam away.

  The barriers that keep would-be entrepreneurs elsewhere in India from starting up have successfully been dismantled—or at least substantially lowered—in Bengaluru. Of course, this is true only for a certain kind of person: The typical start-up founder in Bengaluru tends to be from India’s more privileged classes, and enjoys significant social capital and financial security. They are also likely to have relevant industry exposure, and have the financial buffers to stick with a start-up idea even if it takes a while to succeed.

  What is it about Bengaluru that enables entrepreneurs to thrive? And how can India replicate those lessons? The challenge is to provide a Bengaluru-like support system to someone who has nothing in common with the typical tech start-up founder—a person much like Amit.

  Start-up Entrepreneurs in Bengaluru Can Access a Range of Business Services

  Governments have attempted to boost clusters of SMEs by creating special economic zones where land acquisition is simplified, and companies can enjoy tax breaks. However, these zones are not a substitute for an ecosystem, and have rarely ended up creating many SMEs. 5

  We believe that a cluster should be shaped by local context—natural endowments like proximity to a port, a transport hub or a specific natural resource; as well as social endowments like universities that create a pool of skilled human capital. Various parts of the country already have advantages and resources of their own. By building a community of practitioners and institutions, we can enable everywhere entrepreneurs, already familiar with the local context, to take advantage of opportunities to create firms. What would such a cluster look like?

  Bridgital Clusters Can Spur Everywhere Entrepreneurship

  There are 722 districts in India. To create a physical cluster in each of them would be daunting. But the range of services and practices that form the core of an effective cluster can be made available to them if we move beyond a physical-only mindset. Digital technologies provide the opportunity to extend Bengaluru-like services to local businesses across the country. 6

  Take finance: Digital lending companies are using cashflow history, psychometric assessments and social media behaviour to assess lending risks. An everywhere entrepreneur could potentially use such platforms to access credit without a standard credit score or collateral, irrespective of whether they live in a city or a village. Digital recruitment and training are also becoming mainstream. An everywhere entrepreneur who needs to hire a skilled worker no longer has to approach a labour agency to find workers.

  Creating a Bridgital cluster will need a crucial piece of innovation—a ‘platform of platforms’ that provides entrepreneurs with an easy way to access services. A functional platform could help the proliferation of everywhere entrepreneurs wherever they are based in India. The greatest value of a Bridgital cluster is that it democratizes a range of services that only formal businesses can access today. This has the potential to make the everywhere entrepreneurship movement truly inclusive, involving even small, informal entrepreneurs.

  Entrepreneurs themselves may be hesitant to sign on to such services. When we told Amit about platforms that provide unsecured digital lending, he was sceptical. He was worried about getting scammed, in part because his last experience with e-commerce went poorly. 7 Added to this, even though he engaged with banks personally and offered collateral, Amit could not get a business loan. He found it hard to believe that a stranger who had never met him was willing to approve a loan without collateral. As Amit (and others) grow more comfortable with digital finance, they will perhaps be willing to try applying for loans online as well. Until then, even if they do nothing else, they are still building a crucial data trail.

  For an entrepreneur looking at all the features of a formal firm today, the list of tasks is daunting. There are accounts to look after, contracts and benefits for workers, a payroll and leave system, tax filings. It is as if someone standing at the foot of a cliff were asked to bound straight to the top, in a single leap: Perhaps they could indeed attain that height, but it’s impractical to expect it all in one step.

  The creation of a Bridgital cluster changes the landscape: it breaks down those various services into discrete modules, each representing a small step that a business could take, if it saw value in doing so. Each step takes the business a little closer to the formal end of the spectrum. In this process, Bridgital clusters can be enablers of trust, by providing verified digital services. Firms can be freed to forge their own paths to formality.

  The High Costs of Formality Will Be Lowered in a Bridgital World 8

  This is why boosting the use of digital technology should be one of India’s paramount priorities. The fact is that 68 per cent of SMEs are ‘offline’—they have never used an Internet connection for any business purpose, or might not even have one. Deliberately pushing digital adoption can, we believe, provide a quantum leap to the MSME sector and bring firms increasingly into the digital and formal fold. 9

  Digital Governance: Simplicity and Scale

  No amount of digital innovation will help if SMEs’ biggest hurdle isn’t resolved—dealing with government regulations and the bureaucracy. For one, compliance with existing policies can be and should be made easier. Digitizing government services is a powerful way to simplify processes. Among other things, e-governance systems significantly reduce the instance of cumbersome paperwork; if combined with rules that set time limits on the processing of applications, it can bring a measure of certainty as well.

  Take enterprise registration. Until recently, the registration process for SMEs varied by states and methods (digital or manual). But after 2015, all SME registrations require signing a single-page form. The form can be completed online, and the entrepreneur is only required to self-certify their details. Similarly, the Ministry of Labour and Employment has put together an online portal as a single point of contact for employer, employee and enforcement agencies to increase transparency and accountability in labour inspection. More digitization of this kind can save entrepreneurs’ time, energy and paperwork.

  An approach that sees different government departments independently undertaking digitization initiatives, however, will not be enough. SMEs have to deal with multiple levels and different divisions of the bureaucracy. Manufacturing SMEs, for instance, have to provide the same set of documents—factory architecture layouts, lease deeds, registration information and electricity bills—to the municipality for, say, a fire safety certification, and to the state government for a pollution control certification. Speak to any entrepreneur for long enough and similar stories come pouring out. For some, compliance is a sinkhole of valuable time; for others, not having the right piece of paper means an opportunity missed.

  Digital Governance Can Transform the Relationship between SMEs and the Bureaucracy 10

  As SMEs drive economic and employment growth, their challenges will grow more complex. The real imperative is to eschew piecemeal digitization, attempting instead to transform the relationship between SMEs and the government. It is not only about limiting the duplication of effort for entrepreneurs, but also bringing growth opportunities—many may be unaware of government incentives and export schemes they qualify for—to their doorstep. This will need the adoption of best-practice e-governance systems and principles.

  Estonia, one of the early adopters of e-governance, follows a ‘once only principle’ for data collection to streamline interactions with the bureaucracy. Citizens and businesses provide their information to the government only once. Thereafter, this information is available to every government department. Estonia’s digital governance is estimated to save more than 800 years of w
orking time for the state and citizens every year. A similar approach could greatly benefit India’s SMEs, and the ease of doing business more broadly. 11

  India may be a thousand times the size of Estonia, but as we point out throughout this book—the beauty of a digital approach is that scale can take hold.

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  Small Business, Large Impact

  Janvi, a classmate of Bhoomi’s, used to dream of becoming a cardiologist. ‘Now, I want to start a company that makes the machines that will perform cardiac surgeries,’ she said.

  That moment spoke volumes. India needs to find ways to keep pace with the Amits, while anticipating the Janvis throughout the country. They can be the employers of the future for millions.

  For a sense of how different India would look with everywhere entrepreneurship, consider the following illustration. If SMEs’ share of employment looked closer to that of India’s peers—say, at 30 per cent by 2030—India would have eight million SMEs, generating more productive employment for about 80 million workers. Compared to baseline projections, this amounts to an increase of about five million SMEs and 45 million jobs in more formal and productive firms. 1