10 Oct 2017 19:40 IST

Government schemes to create jobs may fall short

Risk aversion and fear of failure are preventing enterprises from reaching their full potential

Several Modi government schemes, such as Aadhaar and GST, were envisioned during the previous administration and the Micro, Small and Medium Enterprises Development (MSMED) Act is no exception. Signed into law in 2006, the Act mimics the United States Small Business Administration in supporting small enterprises by connecting entrepreneurs with lenders and funding to help them plan, start, and grow their business.

Helping hand

The MSMED does a lot more, though. It provides incubation assistance to budding entrepreneurs right at the college level; nine engineering colleges in Bengaluru have a government-funded incubation centre on campus. Every engineering student is required to complete a ‘final year project’. While many students grudgingly complete it, considering it an unwelcome evil in their busy senior year, a few do take it seriously. The projects that show potential of turning into a marketable product or service can immediately receive financial assistance from the government — not in the form of a loan, but a grant, which is a direct payment of cash. This is tremendously helpful for an engineering student trying to corral funds for a new venture.

If the project is not mature enough, MSMED offers technology transfer assistance by enlisting the support of premier institutions of national importance (INIs) such as the IITs and the IISc. Once the product or service becomes viable, the department provides legal assistance to help you win a patent. If you want to promote the product at a trade show abroad, the MSME reimburses your airfare up to ₹1.25 lakh and booth costs up to ₹1 lakh. Smaller payments are made for promotions at trade fairs in India.

And then there’s procurement assistance, vital to an entrepreneur who is struggling to find his first cash-paying customer. The law requires large PSUs, such as BHEL, BEL and HAL, to source 20 per cent of their procurement budgets through an MSME enterprise. Under the Modi administration, the MSMED has launched an Indian version of the ISO quality assurance programme, called Zero Defect Zero Effect (ZED).

MSME companies which pass a rigorous audit of their management and operational processes are bucketed into one of five classes, from Bronze to Platinum, with various benefits accruing at each level. For example, a Platinum ZED company is automatically entitled to receive Ministry of Defence’s tenders, no questions asked. This is huge because the MoD’s capital budget this year alone exceeds ₹85,000 crore.

Each one of these schemes, through every step of a company’s value chain, is extremely beneficial to a young entrepreneur. The government’s goals are, of course, to promote job growth in an economy challenged by automation and an anti-outsourcing sentiment. Only a small percentage of India’s educated youth are considered employable and millions more never attend college. The skills deficit for a country of our size in an increasingly automated world is a headache for business and government leaders. The MSMED Act holds the promise of creating small enterprises to serve local markets — both to serve customers and hire employees. When employees are productive, they pay taxes and help lift up the economy. They are also not a drain on the government’s welfare schemes.

Indian scenario

Why, then, are entrepreneurial ventures not popular among our young engineers and MBA students?

The main reason is that most of us are risk-averse. It is a lot easier to get through a job interview and work for someone than pursue a stress-laden career as an entrepreneur with unclear outcomes.

There is also the fear of failure. As a society, we chide school-going children if they show a report card which is less than perfect because we expect compliance with the structure that defines elementary and high school education. Never mind that no one remembers how much you scored in Maths in your ninth grade final exam.

But our insistence that our children adhere to structure does not wane. There’s nothing structured about starting your own business. And our children, rarely exposed to a dynamic environment, hesitate to pursue a path which may lead them to fail.

Patents, IP and copyright

There are external reasons too. As I have said in these columns, Indians generally do not respect the intellectual property of others. Even when a patent is granted, it is not vigorously enforced by the law. The creations of an innovative entrepreneur are always at risk of being copied and released to the market as knock-offs, potentially dooming the young venture.

New companies, products and services are vital for any economy. Many of the famous brands that we now take for granted, including the likes of Google, Tesla, Amazon, Facebook, Uber, Flipkart, Android, iPhone, Firefox and Wikipedia, to name a few, did not exist 25 years ago. In the life-cycles of companies, Microsoft and Oracle are actually senior citizens, while IBM and GE are grandfathers.

Unfortunately, India has been a laggard in the creation of new services that people are willing to pay for. Most Indian entrepreneurs settle on sure bets, such as real estate and the food business. Sadly, this may not be enough to realise the dreams of a nation which has one of the highest youth populations in the world.

Recommended for you