4 Lakh illegal rickshaws, 6 Lakh illegal vendors and Why Politics Matters – even to Entrepreneurs

In an earlier post on entrepreneurship, I mentioned how “the “burden” of government can be very heavy – which is why it takes 11 steps on an average, to start a business in India. Not just that, these 11 steps take about 89 days on an average!  In that same post, I also wrote: “I have nothing against the government trying to help entrepreneurs. It should; it must”.  What exactly did I mean by that?

Did I mean that the government should give handouts to entrepreneurs – or somehow select potential “winners” – and help them?  Far from it. Actually, the government cannot select “winners” among entrepreneurs. It simply does not have the skills or the capability. As a friend & fellow activist, Sanjeev said bluntly, “Do we expect generalist IAS officers who have never been able to set up a paan shop successfully in their lives to advise entrepreneurs on how to succeed in business?”

So how exactly can a government help? The short answer is by staying out. The long answer is a bit more nuanced.

But before that, some numbers and facts…

Did you know that more than 80 percent of the cycle-rickshaws in Delhi are illegal (since there are only 99,000 of them allowed legally)? Govt functionaries in Delhi extort a crore a month from the cycle-rickshaw pullers alone! This was the figure in 2006. It has probably doubled since then.

Were you aware that Delhi’s approximately 600,000 street vendors operate without the necessary license and pay up about Rs 12 million per month in bribes? Again, this is from 2006

Were you aware that a law in the state of Maharashtra requires farmers to sell their sugar cane to a specified sugar mill in the district[i]?

Did you know of the law in Kerala which mandates that once a farm is registered as producing one crop, it cannot change its crop without government permission[ii]?!

To understand the implications, imagine if you were allowed to do only a certain kind of job and needed government permission to change employers or your type of work! Or imagine if you were forced to work only in MP if you had an MBA from MP.

Imagine if the Mumbai Municipal Corporation were to decide that Mumbai can only have 5000 CAs – or 10,000 Doctors. Get it?

Would it now surprise you to know that “India ranks among the world’s worst countries at encouraging entrepreneurs. For ease of starting a business, India is 166th out of 183 countries”

Or that it takes 7 years (yes, seven) to close a business in India and  1,420 days to enforce a contract!

You would think this is a bad joke – except it is not.

And millions of small entrepreneurs suffer from this stranglehold of regulations and permits; the vestiges of a still omnipresent (and deeply embedded) license-permit Raj.

Which brings us back to our question: What can the government do?

Staying out of most things would be a start, But that is not enough.

It needs to do more. More than just “staying out”.  It can for example, help create an enabling environment – an environment that makes it easy to start a company; that makes the process not just simple but also transparent – and quick.

The one think all entrepreneurs are perennially short of, is time. And trust me, a government department is the last place they want to be while dealing with the challenges of starting a business.

It can also help by making it easier to start a company – and close one down. It can help by keeping things simple. And making regulations easier to understand and transparent.

It can help by overhauling the judicial system – such that it does not take “1,420 days to enforce a contract”.

It can do more – by simplifying procurement procedures; by ensuring easier lines of credit (rather than the usurious 5-6% a month that many small businesses pay).

Above all, it can “free up” education and open up the sector to private enterprise, especially vocational education and skills-based training. So that India’s 500million youngsters grow up with skills and knowledge better prepared for a world that they are going to face tomorrow. Otherwise we are certain to end up in a situation in which it may be better to get a robot that to hire Indian labour. That would not be nice. It would actually be disastrous. Disastrous for an entire generation of youngsters; disastrous for society.

Why does all this matter? Why do entrepreneurs matter?

It matters because there is only one certain way for us to get ourselves out of the sheer, grinding poverty and lack of opportunities that plague much of India. Entrepreneurs create jobs. Jobs lead to growth. Growth leads to prosperity.

It is that simple.

I wish the government understood that.  Jai Hind, Jai Bharat!

Also see: Liberalisation से किस गरीब का फायदा हुआ है?

References: [i] and [ii] “Why the Poor Have not Done as Well as the Rich in New India” , by Parth Shah,  Fraser Forum, Nov 2006. Cross-posted onToI Blogs