National Entrepreneurship Policy (Draft; submitted to the Planning Commission for consideration) preface



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National Entrepreneurship Policy (Draft; submitted to the Planning Commission for consideration)

PREFACE

Entrepreneurs shape economic destiny of nations by creating wealth and employment, offering products and services, and generating taxes for governments. That is why entrepreneurship has closely been linked to economic growth in the literature on the subject. Entrepreneurs convert ideas into economic opportunities through innovations which are considered to be a major source of competitiveness in an increasingly globalising world economy. Therefore, most governments in the world strive to augment supply of competent and globally competitive entrepreneurs in their respective countries. While developed nations have a reasonably good pace of entrepreneurial supply, most developing countries suffer from dearth of such entrepreneurs. This is one of the reasons for the poverty in developing countries, despite their rich resource endowments.

India has had a long and proud record of entrepreneurship. Archaeological evidences point to vigorous commercial interaction between western India and West Asia, with Lothal in Gujarat being an important port of call, as early as the third millennium B.C. The Buddhist texts and other literary sources also refer to several classes of merchants, including those engaged in long distance trade and major trade routes. By the beginning of the Christian era, Indian commerce had developed sufficient maturity to penetrate European market so much so that Pliny, the well-known Roman author ruefully lamented that a substantial part of the Empire’s wealth was being drained away to India. In the mid-16th Century even the Great Britain thought it prudent to put restrictions on Indian imports. The balance of trade, obviously, had by then tilted heavily in favour of India. It is also noteworthy that a large group of Indian diaspora has contributed significantly to the business developments in many parts of the world. While, being an attractive trade destination, India attracted traders from far off lands; Indian traders too explored business opportunities particularly in East Africa, South East Asia and Arab countries.

The presence of a large number of big merchants in medieval times – e.g., Virji Vora in Surat, Shantidas Zaveri in Ahmedabad, Malya Chetti in the Coromandel region, and the House of Jagat Seth in Bengal are the testimonies to a vibrant entrepreneurial tradition that India showcased. By the beginning of the 17th century, India had developed into such an attractive business destination that the merchants in many European countries – Britain, France, Netherland, Sweden, Denmark – considered it necessary to form special East India Company to exploit the commercial opportunities that the land offered.

Colonial intervention admittedly gave a setback to Indian entrepreneurial tradition. For, the kind of protection and support that a native government could offer was now denied to the Indian business creator. Despite this disability, however, Indian entrepreneurs gave stiff competition in certain areas, such as cotton textiles, in which

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they had competitive advantage over their foreign counterparts. Indian enterprise creators, who had till then confined themselves to mainly commercial pursuits, shifted their attention to modern industries for which they now had access to necessary technology. Entrepreneurs like Cowasji Nanabhai Davar, a Parsi entrepreneur, who set up the first textile mill in Bombay in as early as 1854, was followed closely by Ranchhodlal, Chhotalal who set up the first textile mill in Ahmedabad and second in India, in 1861. These initiatives were followed by setting up of a number of textile mills in Bombay and Ahmedabad. Another major entrepreneurial breakthrough was the establishment of Tata Iron and Steel Company by Jamsetji Tata in year 1907. These are some of the illustrious examples of Indian entrepreneurship during the colonial rule.



By the time, India became free; the country had already developed a vigorous entrepreneurial class. And, as the environment became more conducive after freedom, a whole new breed of Indian entrepreneurs burst forth on the scene to give a new direction to Indian business and industry. Persons like Dhirubhai Ambani, Shiv Nandar, Narayan Murthy and Azim Premji, are creations of the post-Independent environment.

Micro, Small and medium Enterprise (MSME) sector represents the real entrepreneurial class of the country – vibrant, resilient and dynamic, producing over 6,000 products. The sector accounts for about 45 per cent of the manufacturing output, 40 per cent exports and contributes about nine per cent to the GDP of the country. The estimates of the 4th Census of MSMEs conducted by the Union Ministry of MSME for the reference year 2006-07, puts the number of MSMEs at a little over 26 million. Of the 26 million enterprises, 1.5 million are registered, 51.77 are rural, 28.56 per cent are manufacturing enterprises (in registered sector it is 66.67%) and 7.36 per cent are owned and managed by women. These provide jobs to 59.5 million persons. Micro enterprises account for a massive 95.24 per cent share followed by 4.74 per cent small enterprises and 0.21 per cent medium enterprises. The performance of MSME Sector between 2006-07 and 2010-11, for which comparable data are available, has been very impressive. The rate of formation of new enterprises has been consistently about 4.5 per cent between this period, reaching from about 26 million in 2006-07 to 31 million in 2010-11. The numbers for employment were 59.5 million in 2006-07 and 73.2 million in 2010-11, a growth of over 5.25 per cent per annum. Similarly, the MSME sector registered an impressive output growth of over 11 per cent consistently between the corresponding period. It may also be emphasised that the growth rate of MSME sector has surpassed the overall growth of the industrial sector, most of the time.

In the recent past, India’s GDP has been growing at a relatively high rate, and the country is likely to be the largest economy in the world by 2050. Unlike most of the developed economies, India is a young country with about 63 per cent population currently being in the working age group of 15 to 59 years. This is a plus factor in its favour as studies have found that nascent entrepreneurship prevalence rates are highest in the 25-34 age group. But, this demographic dividend could prove to be its albatross if we are not able to engage our youth in creative pursuits through developing appropriate skills, including entrepreneurship skills. In fact, in a recent study covering demographic dividend, Kumar and Subramanian (2012) found “little

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evidence that there was any dividend in the 2000’s” (p.48).1 It may be highlighted that, as of now, barely about 5-6 per cent youth have access to any kind of skill development.



Unemployment and poverty remain major challenges to the polity and economy of the country. We need to create jobs for almost 50 million persons in the country, year after year. While agriculture is not able to offer productive jobs (in fact the sector has experienced an absolute decline of 14.08 million in employment between 2004-05 and 2009-10), employment trend in the manufacturing sector has also been depressing, with a loss of 5.03 million jobs. In public sector, jobs have declined from 19.45 million in 1999-2000 to 17.51 million in 2009-10. The figures for unemployment also keep on hovering between eight and eleven million (on an average nine million), since 1993-94. However, more bothersome is the fact that there was an overall marginal (-0.03) decline in employment, even in the unorganised sector between 2004-05 and 2009-10. Given this situation, to create jobs for teeming millions will continue to remain a major challenge before the government, unless some concrete steps are taken. Moreover, the endeavour is not only to create jobs but create decent jobs that are matched with higher productivity. This calls for entrepreneurial creativity and innovativeness. Under these circumstances, it will be only prudent to promote entrepreneurship in a major way. This, in turn, will create jobs and wealth, offer new products and services, bring in cutting edge technology leading to higher productivity and growth, and will be a major source of government revenue. If one wants to create jobs, one must create entrepreneurs in India. And, if we want to create quality jobs, we must excel in entrepreneurship.

The Indian society, by and large, has a distinct preference for service/decent job, that provides economic security and access to power that be. Youth get exposure to this kind of pro-service culture since childhood. They grow up with a job-oriented mind-set, and seldom think of entrepreneurship as a career. Our educational system also rarely exposes the students to entrepreneurship; prepares them for a job instead. Even if someone with a high entrepreneurial aptitude wants to set up a business, she/he is discouraged by a host of adverse factors: lack of adequate access to information on setting up and operating a business, procedural hurdles, lack of start-up funds, lack of adequate networks and mentoring support, difficult access to technology, lack of a supportive system, operational difficulties, and the nightmare about the consequences of failure. These factors loom large and hinder the emergence of entrepreneurship. In view of these considerations, the Government of India has decided to formulate a National Entrepreneurship Policy with the overarching aim to augment the supply of entrepreneurs.

A clarification on the target of the proposed policy is also warranted. By and large, Entrepreneurship Policies across the globe do not regard self-employment as a part of ‘entrepreneurship’. Rather, entrepreneurship is seen to have some elements of innovation and growth potential. Entrepreneurs bring productivity gains through innovations and enhance competitiveness. Entrepreneurship Policy strives to promote and strengthen the requisite competence to this end.

Kumar, Utsav and Subramanian, Arvind (2012), ‘Growth in India’s States in the First Decade of the 21st Century: Four Facts’, Economic and Political Weekly, Vol. XLVII, No. 3,

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While the above paradigm has merit and will be given due consideration, entrepreneurship policy in a developing country like India, suffering from serious unemployment problem, can hardly ignore self-employed segment of the economy. Not only do these ‘necessity based’ entrepreneurs eke out their living as an integral part of unorganised/informal sector, they also contribute significantly to GDP and employment. It is estimated that the non-farm unorganised sector accounts for about 89 per cent of the gross value added and almost 98 per cent of employment in MSMEs, of which over 64 per cent units fall in the self-employment category. Government is aware of the fact that due to their informal status, they do not have much access to the Government support umbrella. It is, therefore, necessary to craft an Entrepreneurship Policy which is all inclusive and addresses concerns of self-employed micro entrepreneurs as well as under-represented groups like women, minority communities, SC/ST, other disadvantaged groups.



In view of these considerations, the proposed Policy, though focussing primarily on innovative, nascent, start-up and growth-oriented entrepreneurs, also addresses the issues confronting self-employed micro entrepreneurs and under-represented groups with a view to making them more productive, efficient and competitive.

The proposed Entrepreneurship Policy, it needs to be clarified, is different from Micro, Small and Medium Enterprise (MSME) Development Policy. While MSME policy focuses on existing enterprises or a group of enterprises (clusters), entrepreneurship policy focuses on individuals with an expectation that they would move towards entrepreneurship. The client in the case of an MSME Policy is a firm, a physical entity, unlike the entrepreneurship policy where it is difficult to pin point the ‘target’. The Entrepreneurship Policy encompasses multiple stages in the emergence of an enterprise from pre-start to stabilisation and growth. It usually focuses on motivation, opportunity and skills with the primary objective of encouraging people to venture out. Moreover, while an MSME Policy uses ‘hard policy instruments’ to directly benefit established firms; entrepreneurship policy uses ‘soft’ policy measures such as awareness, promotion, skill development, networking and mentoring, and tries to change the mind-set of target group. In short, it aims at making entrepreneurship a movement. Nevertheless, it may be stated that be it the MSME Policy, Export and Import Policy, Manufacturing Policy, Competition Policy, or Education Policy, all have a significant bearing on the emergence and growth of entrepreneurship. And, thus, the Entrepreneurship Policy is seen as a major supplement to these policies.

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Part A



1.0 POLICY STATEMENT: BROAD FEATURES

1.1 Most of the studies on the role of entrepreneurship in economic growth suggest that there is a strong relationship between the level of entrepreneurial activities in a region or a country and its rate of economic growth (Carree and Thurik, 1998 and 2002).2 The Global Entrepreneurship Monitor (GEM) in its report of 2002 also showed that the national level of entrepreneurial activity has a statistically significant association with subsequent level of economic growth. GEM data also suggests that there is no country that has high levels of entrepreneurship and low levels of economic growth (Reynolds et al., 2002, p. 24).3 In the Indian context also, a study found a similar trend. On the basis of a cross section of data for 17 major states of the country, the study found a positive impact of the Index of Entrepreneurship on per capita income. The regression results indicate that a unit change in the value of the Index of Entrepreneurship will bring Rs. 185.40 change in per capita income. Using a double log function, the study also found that one per cent change in the value of the level of entrepreneurial activity will lead to 0.05 per cent change in per capita income. More interestingly, the study also revealed that average per capita SDP of the states with Index of Entrepreneurship above median is on an average higher by Rs. 6096 compared to the states with lower value of the Index.4

1.2 The role of entrepreneurship is not confined only to creation of enterprises, but also includes creation of the capacity to produce wealth, jobs and income, which are the most direct indicators of economic development. In fact, underdevelopment is not because of the lack of natural resources but because of the absence or inadequate supply of entrepreneurs. If only natural resources were the key determinant of economic growth, the entire African continent or Latin America or most of Asia would have been developed. Within India, states like Assam, Bihar, Madhya Pradesh, Orissa, etc., would have been leading the growth trajectory of the country. As a matter of fact, economic growth is the outcome of entrepreneurial endeavours. They pool

2 Carree, M., and A. Roy Thurik (1998). Small Firms and Economic Growth in Europe. Atlantic Economic Journal 26 (2): 137–146.And, Carree, M., and A. Roy Thurik (2002), The Impact of Entrepreneurship on Economic Growth, in Zoltan Acs and David B. Audretsch (2003), International Handbook of Entrepreneurship Research, Boston/Dordrecht: Kluwer Academic Publishers. A number of studies relating to OECD countries reveal a positive relationship between business start-up rates between 1988 and 1996 and economic growth between 1989 and 1999. Kantis, Hugo, Masahiko Ishida and Masahiko Komori (2002). Entrepreneurship in Emerging Economies: The

Creation and Development of New Firms in Latin America and East Asia. Washington, DC: Inter-

American Development Bank.

Reynolds, Paul D., William D. Bygrave, Erkko Autio, Larry W. Cox and Michael Hay (2002). Global Entrepreneurship Monitor 2002 Executive Report.

Awasthi, Dinesh, Kashyap, SP and Yagnik, J (2006), Entrepreneurial Manifestations: Present Trend and Changing Landscape in an Inter-regional Context, Unpublished Report, New Delhi, Government of India, Ministry of Micro, Small and Medium Enterprises.

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together and organise various factors of production. They explore opportunities, convert ideas into viable business propositions leading to provision of new products and services to society. They change the way we live.



1.3 While there always is an autonomous supply of entrepreneurs in all parts of the world, in the developing countries it falls short of the quantity that is necessary to adequately exploit resources to generate wealth and employment. There are also issues pertaining to the quality of entrepreneurs. The quality of whatever little autonomous supply of entrepreneurs these developing countries have is also rather suspect. This is amply reflected in the high (close to 40%) industrial sickness in these countries, including India.

1.4 India needs opportunity-driven competent entrepreneurs, who set up sustainable enterprises, create employment, and generate wealth, whereas most entrepreneurs in developing countries are ‘necessity driven’ ‘forced entrepreneurs’. They enter into the realm of business as they have no option to earn their livelihood from any other source. As a result, whenever the economy does well, the size of self-employed category invariably shrinks, as these self-employed ‘pseudo’ entrepreneurs’ move to jobs that provide financial security and decent earning, which, as self-employed, they will seldom earn. The question is; where will this supply of ‘opportunity driven’ entrepreneurs come from? How will potential entrepreneurs acquire competence and global competitive edge?

1.5 Added to this are the burning issues of unemployment and poverty that continue to pose serious challenges to polity and economy of the nation. From where will jobs come if we do not have adequate number of job providers, i.e. entrepreneurs? The role of Government as a job providing sector is likely to diminish over a period of time. Agriculture has limited capacity to provide gainful employment to the teeming millions. Even if we think of diversification in the agricultural sector, farmers will require a different mind-set. They will have to look at agriculture as a business rather than a traditional occupation and merely a source of livelihood. With the advent of WTO, even the agriculture sector will have to be reoriented, revamped, and made entrepreneurial to take advantage of a liberalised world market. Service sector has been emerging as a major source of employment creation. But it also needs entrepreneurs, the drivers of growth.

1.6 The need of the hour, therefore, is to augment the supply of well-groomed opportunity and innovation driven entrepreneurs, rather than ‘factor’ or ‘necessity’ driven self-employed. We must create job providers in larger numbers rather than job seekers. It will help redress the twin problems viz. unemployment and poverty.

1.7 This requires concerted efforts. Youth should start looking at entrepreneurship as a lucrative career. The Government realises that there is a need to ‘catch them young’. This requires inculcating entrepreneurial values and skills in them at a young age. This may also require introducing entrepreneurship in the education system. There is also a need to inculcate entrepreneurial

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temper in society at large to make all walks of life entrepreneurial, to make India an entrepreneurial nation wherein entrepreneurship becomes a way of thinking, a way of life.



1.8 Though, several initiatives are in place to promote entrepreneurship in the country, the efforts are disjointed. There is a plethora of policies such as Micro, Small and Medium Enterprise Policy, Manufacturing Policy, Competition Policy, Industrial policy, Science and Technology Policy, National Design Policy, etc., that touch upon and have implications for entrepreneurship, directly and indirectly. But the focus on entrepreneurship remains fragmented and devoid of any strategy content. It is argued that there must be a mechanism in place that leads to a high rate of inflow of new entrepreneurs who in turn create new enterprises. The questions being raised are of the quality and quantity of entrepreneurs who could take advantage of the emerging opportunities in the wake of liberalization and globalization of the economies. India unfortunately is deficient on both counts. Across the world, business processes have undergone a sea change in the post liberalisation era. It would be difficult to meet the level of competition with traditional family owned business processes. There is a need to modernise businesses so that they become globally competitive. Entrepreneurship needs to be made a revolution. Therefore, the Government has decided to refocus on promotion of entrepreneurship in the country, in a strategic manner, through a comprehensive ‘National Entrepreneurship Policy’.

1.9 Vision:

The vision is: ‘To place India in the comity of front ranking entrepreneurial and innovative nations.’

1.10 Mission:



The mission of the entrepreneurship policy is to create an eco-system in India wherein opportunity based and innovative entrepreneurship germinates, sustains and grows leading to creation of a more dynamic and ‘entrepreneurial economy’, besides covering under-represented communities to achieve inclusive growth of entrepreneurship.

1.11 Objectives of the Entrepreneurship Policy: The overall objective of the ‘National Entrepreneurship Policy’ is to create conducive conditions that augment continuous flow and emergence of opportunity driven entrepreneurs. The specific objectives of the Policy are to:

trigger an entrepreneurial culture and inculcate entrepreneurial values in society at large and influence the mind-set of people towards entrepreneurship;

create awareness about the charms of being an entrepreneur and the process of entrepreneurship, especially among youth;

encourage youth with science, technology and engineering background, scientists and technologists to consider entrepreneurship as a lucrative,

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preferred and viable career option; and, thus facilitate creation of knowledge-based start-ups and growth ventures, in large numbers;



support early phase of entrepreneurship development including the pre-start-up, nascent as well as early post start-up phase and growth enterprises;

broaden the base of entrepreneurial supply by meeting specific needs of under-represented target groups like women, minorities, socially and economically backward communities, scheduled castes and scheduled tribes and under-represented regions to achieve inclusive, balanced and sustainable growth of entrepreneurship in the country;

facilitate creation of social enterprises to address the needs of the population at the ‘bottom of the pyramid’;

ensure adequate availability and flow of information to potential entrepreneurs, eliminate entry and exit barriers, create a business friendly, non-threatening and conducive regulatory and policy environment to reduce administrative burden related to compliances of various kinds; and

create an eco-system by evolving an institutional framework and organisational structure to achieve the above objectives.

1.12 To achieve the above stated objectives, the Government will follow a multi-pronged strategy:

Sensitising, Promoting and Igniting Entrepreneurship

Creating and Fostering Entrepreneurship

Nurturing Entrepreneurship

Recognising and Celebrating Entrepreneurship

Institutionalising the Entrepreneurship Movement

1.13 Based on these broad strategies, specific policy instruments have been conceptualised to achieve the stated goals and the overarching Vision of the Government to ‘place India in the comity of front ranking entrepreneurial and innovative nations.’ These instruments which are outlined in greater detail in Part B of the Policy document broadly cover the following areas:

Promoting entrepreneurship through electronic and print media;

Introducing entrepreneurship in the education system at all levels to orient and prepare students for an entrepreneurship career by imparting skills, knowledge and aptitude for entrepreneurship;

Placing special focus on introduction of entrepreneurship as a core subject in engineering colleges and other technical institutions to promote technology based enterprises through promoting Incubators; and, creating a system to encourage scientists to commercialise R&D without hampering their IPRs; and bringing industry-academia closer to augment the process of commercialisation of scientific discoveries.

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Promoting ‘inclusive entrepreneurship’ by bringing women, minority communities, scheduled caste and scheduled tribes and other under-represented groups within the ambit of the Policy so that they get their fair share in the Government efforts to promote entrepreneurship. Provisioning business development services and business counselling for these target groups will be ensured, given its importance in promoting and nurturing entrepreneurship;



Fostering ‘Social Entrepreneurship’;

Promoting an eco-system for accelerating entrepreneurship, enhancing the flow of information on procedures and formalities to set up an enterprise by strengthening the one-stop-shop i.e. single-window system; and, ensuring ease of ‘entry and exit’;

Enhancing access to finance for start-ups, growth enterprises, tech-enterprises and micro entrepreneurs.

Recognising entrepreneurial achievements and organising ‘Awards’, setting up Young Entrepreneurs’ Consortium, etc.

Creating an organisational structure for advocacy and coordination to promote an ‘Entrepreneurship Movement’.

1.14 Through these strategies, an attempt will be made to reduce barriers to entry into entrepreneurship and hasten the pace of entrepreneurial supply. This would mean increased rate of formation of new enterprises which are the major source of innovation, employment and wealth creation. Government realises that such an endeavour could hardly be achieved without strong participation of diverse stakeholders: public sector, private sector, educationists, scientists, bankers, captains of industry, non-government organisations, etc., with the Government, being a key stakeholder, as the coordinator. The Government role, however, would be that of a facilitator, a catalyst and a regulator rather than a controller.

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