01 Sep 2016 12:32 IST

The environment for entrepreneurs

Along with laws, procedures and processes, we also need mindsets ready to embrace change appropriately

In recent deliberations at NITI Aayog, Prime Minister Narendra Modi struck a very relevant note when he said that India needs rapid transformation, not gradual evolution. This cannot happen without a corresponding change in mindsets. Laws, procedures and processes must be tuned for the 21st rather than the 19th century. He said mindset changes typically occur at times of shocks or crisis.

Let me take this last aspect as a starting point.

Crisis round the corner

It is vital to banish all doubt that a crisis is omnipresent, whether we see/recognise it or not. This essentially arises from not being anywhere close to creation of the rojgaar that India needs. While 8 per cent growth is worthy, it is still at the bottom of the desirable 8-10 per cent band, without which broad-based prosperity and closing of gaps between aspiration and reality cannot be truly addressed. Time is running against us too!

Some studies indicate one hard factor that can impede private investment — the deepest earnings decline in 20 years (according to Morgan Stanley) — that compounds the pain of over-leveraged balance sheets and excess capacities. The investment cycle has not yet turned positive, while current interest is at best selective in terms of industries and geographies.

Softer and feel-good factors such as economic growth (leading to better market opportunities) and improved ease of doing business are added selling points in inviting investment. However, is it possible that something more rudimentary curbs the enterprising spirit?

Getting past surveys

We need to explore territory beyond customary surveys painting a rosy picture for investments or profits or jobs, but always “in the future” — Is it more lip service than strong commitment?

In building sustainable economies, leaders across the world often realise that the right course lies in strengthening entrepreneurs rooted in their communities. In saying this I do not imply any subset but advocate enterprise across the board — be it in industry/services or self-employment.

Commitment and expansion by desi (or homegrown) entrepreneurs — both new and established — is the surest endorsement that can trigger all future investment and job creation. Therefore, the prevailing sentiment of domestic participants in Indian industry and commerce (and their own assessment of realities versus policy intent) is very relevant.

It is necessary to make a distinction between (a) entrepreneurs who invest a material skin of their own in the game (financial or reputational stakes) and (b) businesses managed or mentored professionally yet funded by institutional capital or deep pockets abroad.

My exploration relates essentially to the culture and environment in which entrepreneurs have to function — the hard facts are there for all to see and appreciate or comment upon. On the surface there is just about no one who questions (a) the growth potential of India, (b) the commitment of the Government to bring about lasting change in policies and systems for the better, and (c) the fact that India appears to be the only bright economic outlier in the global economy.

Then why do doubts and frustrations simmer? Admittedly they remain below the surface and off the radar, even when shared in informal exchanges by honest members of the commercial world.

Why the doubts?

For one, tribulations flowing from archaic laws and an essentially socialist policy era are out of sync with contemporary or future needs. Yet, whenever faced with problems the natural instinct (prodded by political/activist pressures) still appears to most to regulate, investigate, intimidate, impose or tax, notwithstanding the positive narrative under a development agenda. Subsequently an empowered, sometimes confused and mostly cautious, administration ends up creating unintended impediments. Rent-seeking by a section, including for not using draconian provisions, cannot be ruled out.

In such circumstances, noble and worthwhile principles more often than not end up in bad or shoddy policies and laws. Sometimes this appears to be accompanied by the granting of intrusive and penal powers, for which (a) an abusive wielder is not seen as being held accountable, and (b) for those at the receiving end, judicial security is usually too delayed to be of value.

As history has shown, daunting rumours and bad news travel and impact sentiment far quicker than good news can. The mindset change or a drive to change that the Prime Minister speaks of, cannot remain restricted to the top echelons of leadership and a few levels of the administrative machinery. But that is where it really stops today. The harsh fact is that despite the energy and willingness at the top to change and improve, ground realities are different. Such disconnects are serious inhibiters.

If we hope to successfully impose global best practices and standards of governance, financial hygiene and probity, we must enforce matching maturity in the larger ecosystem. For example, every tax or borrowing or governance infraction by some persons cannot be used to paint others with a broad brush.

Yes, it is true that members of the commercial community through their own delinquency give larger sections a bad name; but the pain persists partly because collectively the community may not have reacted with due alacrity and decisiveness in proving distance from delinquent actions.

It disappoints many that some policies occupy a larger-than-deserved share of mind/media-space and are goaded by investigative or other bodies, not executive or legislative in nature. While well-intentioned, they can lack comprehensive domain knowledge or big-picture appreciation and thus advocate idealistic or unduly punitive measures. This is unfortunate.

Therefore, there exists the possibility that their recommendations or timing/implementation may lead to unintended outcomes. This in turn could lead to a vicious circle where failed results get tackled through more sub-optimal policies — leading to long-term volatility.

Entrepreneurs of all sizes need a predictable economic environment/culture that accepts success and failure with equanimity, a regulatory environment where trust plays a key role, and a public environment where they can hold a place of pride as national contributors.

I believe that our leadership concurs with such principles, but on the ground we have a long way to go before delivering on these impressive intentions.

(This column explores ideas and opinions on Indian enterprise and economy. The writer is an entrepreneur and former president of Ficci. The views are personal)

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