American presidential candidates make much of their humble origins. In the Republican party’s debate last month, Marco Rubio pointed out that he was the son of a Cuban bartender and John Kasich that his father was a postman. Then the contrast was drawn with Presidential frontrunner Donald Trump, who has made so much political capital out of his career as a successful businessman – and because he is the son of a successful businessman.
If the land of opportunity and equality, the USA, needs businessmen to be supported by powerful fathers, where does that leave a country like India, where patronage has flowed from power through centuries of our history.
Certainly, the first hurdle for many a budding entrepreneur is money. Without some financial support, no business can take off. Historically, this was a strong reason why entrepreneurs tended to come from a limited number of families belonging to the Gujrati or Marwari community or the Parsees of Mumbai. Wealth perpetuated itself; those who had it helped their own people.
The emergence of Banks has mitigated this problem to some extent. Finance is available to anyone who can offer a viable business plan and collateral. But Banks typically do not offer upto 100% of required funds as financing, and that means there still is some requirement for assistance.
The second hurdle is the need for regulatory approvals. The sad fact is that for all the talk of reform and liberalisation, India has not quite broken free from ‘License Raj’, as it was known. The sheer number of permissions and approvals needed to form a new company is daunting. Worse, without some persuasion of a financial or political kind, bureaucrats have been known to hold up these permissions and approvals. As a result, the budding entrepreneur is forced to either be willing to wait for years and years (by which time his product idea might have been pounced upon by someone else) or lean on a powerful godfather to expedite the process.
Perhaps recognizing the flaws in the system, the NDA government has since 2014, and as a part of the Startup India campaign, systematically tried to reduce the amount of ‘red tape’ involved.
Single-window clearances, introduction of self-certification and concessions offered to smaller start-ups have meant that aspiring businesspersons can now look forward to getting their work started without resorting to bribery or threats. In its way, this measure of Prime Minister Modi could so much to reduce the dependence on godfathers for young Indian entrepreneurs.
Finally, even after a business is launched, the need for continuous funding can lead to problems – working capital is a necessity, and to expand, it is often not enough to wait for profits and re-invest them. Large sums of money are needed to scale up operations and Banks are often less generous with funding these to small, newly-established companies.
For this problem the answers are not as simple. Of late, however, an increase in attention of Venture Capitalists and Angel investors has alleviated this problem to some extent. In exchange for a stake in the company’s equity, these investors are willing to fund the expansion of companies. It is somewhat true that Indian Venture capitalists often follow money rather than ideas, backing ideas and people who may not be the most likely to succeed, but it is nevertheless an option where earlier there was none.
We are on the cusp of a new era for India. From a nation where all the big industries were owned by the same ‘Big 5’ families – the Tatas, Birlas, Dalmias, Ruias and Ambani’s, we now see a country where small-town entrepreneurs can become national news. From Richa Kar of Zivame to the Bansals of Flipkart, young Indians have shown they have the drive and talent to become major players without the backing of a shadowy godfather pulling strings in the background. Let us hope this progress continues, until the words that Prime Minister Modi said in his now-famous address on Independence Day, 2014 come true:
“We want a startup network to be established in India. We are looking at systems for enabling start-ups. We must be number one in start-ups… Start-up India; Stand up India.”