The latest to join the list of important days in India is November 9, which has just been added to celebrate the National Entrepreneurship Day. Interestingly, it comes at a time when India has reported a significant improvement in World Bank’s Ease of Doing Business rankings even though the country is still ranked at a low 100th position. The day is also being celebrated at a time when both job and credit growth, some of the indicators of a healthy enterprise ecosystem, are abysmally low.
Be that as it may, it is a good thing that we are celebrating entrepreneurship. Not only is this a humble reminder of how far we have come from the days of controlled economy, where profit was a dirty word, it must also serve as a reminder of the distance that lies ahead.
It is perhaps also an opportune time to try and understand the complex phenomenon of “entrepreneurship” better. Let’s begin with a well-established fact: essentially “entrepreneurs” are “job creators” but in any economy we have majority of job seekers than job creators — meaning thereby that entrepreneurship is a rather rare phenomenon. So why then is the government putting so much political capital and resources in promoting it? The obvious answer is that there is economic gloom and the government is desperate to kick-start the economy and create jobs. It is coaxing the “entrepreneurial types” to unleash their animal spirits.
However, there is also a less obvious side to it. Just look around and you will see that there are already far too many first generation entrepreneurs now than we had in decades prior to the ’90s. Their numbers have been gradually increasing since the inception of liberalisation and the advent of advanced computing as we know it today. These enabling attributes were possible because of the policies that we adopted. So that settles at least one thing, policy-driven approach to boost entrepreneurship does work, at least to some extent.
A right set of policies can create an environment of high entrepreneurial activity which can wire the societal mindset towards “high risk, high reward” thinking. This behavioural aspect can be proven by a converse theory too. Take for example, rural women and farmers. These two categories are what we are inclined to think as natural entrepreneurs perhaps because both are instinctively good at working with limited resources to produce a certain output, but when evaluated against evidence, one will find that most efforts to turn them into thriving entrepreneurs have only sub-optimally worked.
More specifically let’s look at farmers — they work with land, capital and labour and hence agriculture is similar to any industrial activity but our farmers are far from being the kind of entrepreneurs that we need in the economy. They are barely able to survive, let alone being job creators.
The message in the story so far is quite sad — surviving is not quite the same as entrepreneurial instincts. Majority of our farmers are small or marginal and perpetually in a debt trap, hence unable to make decisions about growth and expansion. The World Banks’ World Development Report 2015, which focuses on Mind, Society and Behaviour, reinforces this argument. It states that our policies are not based on an understanding of how everyday thinking works. Citing an example of sugarcane farmers in India, it makes a point that financial stress takes a toll on cognitive abilities and financial decision-making, and hence, in a sense poverty imposes a cognitive tax.
It is this element of “cognition” that is at the heart of the concept of “entrepreneurship”. Those who are innately entrepreneurial can succeed despite all odds but those who are not can perhaps succeed if their “entrepreneurial cognition” is allowed to develop. It is this aspect that we must be focusing on but unfortunately we only seem to be utterly oblivious of it. Yet another example from our farming community explains this better. Recently, a record of sorts was reported. For the first time the total value of milk production in the country exceeded the value of food grain production. This should have come as a good news for our small dairy farmers, but on the contrary it has spelt a new crisis for them. The dairy sector, which is dominated by large companies, is witnessing fierce competition thus leading to a fall in the price of milk. As a result, the margins of small farmers are being reduced further thereby turning them away from being the entrepreneurs that they would like to be. In the wake of this crisis, they are at best workers for large corporations.
Indian socialism (or the way it has been practised) did something similar to the DNA of our country. Generations after generations became dependent upon the state as the sole provider thereby draining a large chunk of entrepreneurial energy from our society. Excessive government control ensured that its strands are visible even many decades later and to top it all the damage that it brought in the form of corruption has affected the psyche of even a common man.
In all of this gloom though, sparks of political entrepreneurship gave us a hope to be optimistic about the future. Rajiv Gandhi articulated the vision for 21st century India; Narsimha Rao-Manmohan Singh duo led us to first generation economic reforms; Atal Behari Vajpayee and Dr Singh brought us out of nuclear apartheid and Narendra Modi is working overtime to make India look good to investors.
Unfortunately, what is still happening is that we are eliminating many natural entrepreneurs (our farmers) in a rush to create new. Whether it is our start up policy or EODB fetish, what we have seen is that the top level intent does not match the ground level realities and incidentally, it is from the ground that the entrepreneurs come.
The writers work for CUTS International