The Small Picture: How SMEs Drive the Economy

Kolkata-based jewellery designer Eina Ahluwalia applied for a trade licence when she launched her label nine years ago. She waited for a month with no response, “till someone who knew someone who knew someone in the department got it done in a week!” she recalls indignantly. Hers is more the norm than the exception when it comes to starting a small or medium enterprise (SME) in India. If you haven’t inherited a business, setting up one in India comes with a host of challenges that seem geared to ensuring failure instead of encouraging success. It isn’t just about complex laws; it’s also about a hostile work environment.

The world over, SMEs drive economies – those mom-and-pop stores are the ones keeping the market alive. Before 2008, 85 per cent of all US companies were small firms; they employed half of all US labour, and contributed almost half the GDP. In Asia’s largest economy, Japan, SMEs account for 56 per cent of GDP and employ more than two-thirds of its labour. But in India, small startups faces huge blocks – from logistics to infrastructure to red tape and bureaucratic egos – that discourage their very existence. No surprise they contribute only 17 per cent to GDP.

Ironically, we’re one of the most enterprising races in the world. Of the hundreds of businesses that Aashish Puri helped launch in his six-year-stint with a venture-capitalist firm in the US and Europe, a majority were headed by Indians. “We love working hard. When limitations are removed, there’s nothing to stop us from creating winners,” he says. Now the founder and COO of Rock.in, an e-commerce firm that retails global fashion brands in India, the ‘serial entrepreneur’ is busy battling logistical issues such as inconsistent courier rules across states.

Abhay Gupta, CEO, Luxury Connect, finds that besides these “generic issues” of starting a business in India, the luxury sector also faces regulatory issues related to high customs duty or FDI norms, and unclear definitions on 30 per cent sourcing from the SME sector. He also cites lack of retail space and bank finance as a key issue that is not as acute in other parts of the world, where rules are better defined.

Availability of funds is also brought up by senior financial consultant RC Rawal, who has helped set up scores of small firms in his 25-year career. “Those who don’t need the money, get it,” he says in half-jest. “A giant blue-chip company would get loans at unfairly low rates, while a first-generation entrepreneur will struggle to get one at all.” Government guidelines for concessions to SMEs remain on paper, he believes. “Most young graduates without a family concern head for a stable job at established firms. Who can even think of setting up a business in this environment?”

Then comes the well-bemoaned lack of efficient commercial spaces. The capital, for instance, has barely a handful of poorly developed and badly maintained business centres – what new-generation globally ambitious enterprise would thrive in a run-down Okhla, a cramped Nehru Place or a dug-up Connaught Circus? We’re booby-trapping our entrepreneurial talent with potholes, literally.

To nurture SMEs, a systemic effort is required at all levels – private and public, legal and financial. We’re a nation of ideas and enterprise. It’s time we recognised our own potential – and used it.