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Category: Policy

  • The Global Innovation Challenge

    Rising unemployment and income disparity has shaken democracies across the Western world in the last year. Unemployment among young people in particular has been persistent and pervasive — the United States saw the highest ever youth unemployment in 2011, and it has reached as high as 45 percent in Spain. Job creation has suffered not just because of excessive debt. Advanced economies have seen a massive erosion in manufacturing, and new enterprises have been too focused on driving consumption.

    Internet companies have mushroomed in Silicon Valley thanks to the low cost and ease of building products for the Web. They’re able to scale globally while maintaining a relatively low employee headcount. The year 2011 was a landmark one for Internet companies, with several start-ups going public and raising over $3.5 billion in the best year for initial public offerings since 2000. Among the biggest ones to do so in the United States were LinkedIn, Zynga, Groupon and Renren, a Chinese social networking site. And Facebook’s recent filing for a $5 billion public offering could make 2012 the best year for Internet I.P.O.’s since the dot-com days of 1999.

    But all these companies thrive on aiding consumption, whether it’s through gaming, social networking or group discount buying.

    In contrast, production-oriented technology sectors in health care, advanced materials and energy have had limited success in America. Most ventures in clean technology have absorbed large amounts of capital and have yet to show returns for investors. Many that have managed to grow, like A123 Systems, which manufactures advanced lithium-ion batteries, and Tesla Motors, aren’t very profitable. The success of consumption-driven Internet start-ups has left production-oriented ventures behind.

    It’s technology that ensures equitable growth. Think of how mobile phones are ubiquitous across the developing world: there are over five billion cellphone users worldwide. Would it have been possible for all of them to have landline telephones instead? Would there be enough copper in the world to draw wiring to even the poorest day-wage laborers in India and China who today use cellphones? Even if the world had enough copper, could it all be mined quickly enough with limited environmental impact, and could it be devoted to laying telephone lines for a customer of meager means? Almost every modern day convenience that the West takes for granted will have to be re-engineered to make it cheaper and better for large-scale use in the developing world.

    There’s a dichotomy here. The advanced Western economies aren’t able to create jobs partly because of their inability to compete with Asia when it comes to large-scale manufacturing, and this has in turn limited their ability to scale production-oriented technology companies. In the East, the emergence of manufacturing — and in India’s case, I.T.-outsourcing — has created higher incomes, a stronger consumer culture and the need for energy and resource efficiency. Rapid urbanization and industrialization in the developing world are irreversible trends. There are suddenly billions of consumers in Asia who can now aspire to the standard of living in advanced economies, and meeting this demand will require a giant leap of innovation across sectors like energy, chemicals, health care, transportation, water and materials.

    But emerging markets lag in innovation because their entrepreneurship ecosystem, higher education institutions and research infrastructure are far less robust. Above all, entrepreneurship is celebrated in American culture and business failures aren’t looked down upon. Silicon Valley is the product of this culture — like French cuisine and Indian classical music, it cannot be cloned. As the world’s innovation engine, Silicon Valley should lead the way in commercializing game-changing technologies that can ease constraints on the world’s resources and enhance production. Instead, it has found more success in ventures for the consumer market.

    But start-ups must be close to their customers, and there’s a case to be made that industrial and clean-tech start-ups in Silicon Valley have been hard-pressed for success because their real customers are in emerging markets. From an economic standpoint, climate change and resource efficiency are more the problems of developing nations. Moreover, as the bankruptcy of American clean-energy start-ups like Solyndra has shown, innovation that needs to be propped up by governments is difficult to sustain.

    Similarly, consumer Internet ventures in emerging markets are only able to clumsily copy ideas from abroad. Though there is a rapidly growing middle class with Internet access in India and China, the United States still has the world’s largest and most affluent consumer base, making it a natural pioneer for consumer Internet innovation.

    The Internet is challenging the hegemony of nations. An Internet start-up in any country can reach consumers worldwide because of the platform’s openness. But the same isn’t true for production-focused start-ups. Greater economic integration and free trade will help them globalize more easily. To foster innovation in production-oriented sectors, nations need to champion the freer flow of technology, labor and capital and create institutions and laws that promote the same openness. There needs to be a symbiosis between entrepreneurial talent, investment capital and sectors that are in need of transformational innovation. Only then will global economic growth be truly inclusive and harmonious.

    Originally Published: http://navam.in/ZD1ODE

  • India Needs Infrastructure For World-Class Research

    When Dr. Venkatraman Ramakrishnan was announced as one of the winners for the Nobel Prize in Chemistry last year, the nation erupted in celebration. The president and prime minister formally acknowledged and congratulated Dr. Ramakrishnan’s achievement. The media went into a tizzy documenting the life and work of the typically shy and introverted professor who suddenly found himself at the center of attention in the land of his birth. Encomiums poured in from all quarters, and Dr. Ramakrishnan was so overwhelmed with the reception that he actually asked people from India to stop contacting him with congratulatory messages and good wishes, to which some in India took offence. Dr. Ramakrishnan emphasized how it wasn’t important that a person from India had helped understand ribosomes, which are the protein-producing factories in cells, and it was significant because it was a fundamentally important scientific discovery. It was easy to feel the excitement he felt in doing his work from the choice of his words, and his almost blasé attitude towards winning the highest prize in his field made the honour seem incidental.

    Venkatraman Ramakrishnan was born in India in 1952, shortly after Independence. He graduated from the Maharaj Sayajirao University of Baroda in 1971 with a BSc in physics. He then obtained a PhD in physics from Ohio State University in 1971, and went on to study and conduct research in biology at the University of California, San Diego and Yale University. Dr. Ramakrishnan switched from physics to biology late in his academic career, and his work on understanding the structure of ribosomes after completing a PhD in physics won him the Nobel for chemistry. Today, he leads the group working on understanding biological structures at Cambridge University’s Laboratory for Molecular Biology, the same laboratory where Francis Crick and James Watson discovered the structure of DNA in 1953.

    It is instructive to ask the question why Dr. Ramakrishnan chose to the leave the country in 1971. If Dr. Ramakrishnan stayed in India after completing his studies at Baroda, he would not be able to conduct the cutting-edge research that he did in laboratories across the US and UK because India lacked the research infrastructure, even though a full generation had grown up since Independence was achieved in 1947. Moreover, it would have also been almost impossible for him to build a research career in biology after completing a PhD in physics. It is likely that Dr. Ramakrishnan would not have been able to do the work which ultimately won him the Nobel if he had remained in India. Science would have been poorer.

    Nanotechnology is an enabling technology, and is based on the design and engineering of materials at length scales of below 100 nanometers to obtain unique and novel materials properties that would otherwise not be achievable. It’s common experience that a cube of sugar takes much longer to dissolve than the powdered form. Certain material properties are size-dependent, and it is this principle that is at the core of all nanotech innovations, which are rooted in breakthroughs in basic sciences and engineering.

    Recently, clean technology has become an area which is seeing the widespread application of such novel materials, including nanomaterials. Venture capital investment in nanotechnology and materials-based technologies has increased at a rate of over 40% annually worldwide since 1997, according to New York-based research firm Lux Research. India received just 2% of global venture capital investment in 2008, compared to 10% for China and 4% for Israel, a nation whose economy and population is many times smaller. As Asian countries such as China and India industrialize, productivity gains and process efficiencies derived from advances in nanotechnology and advanced materials will be critical to ensure that the consumption of naturally-occurring minerals and commodities is optimized and waste is minimal.

    According to numbers published by the Government of India’s Department of Science and Technology, investment in research and development has languished between 0.85% and 0.90% of GDP since 2000. Moreover, since 1998, private sector investment in R&D has grown substantially to contribute over 25%, while government investment has declined. This means that while tax receipts have increased in the period alongside the boom in the economy, the government’s research funding has declined in relative terms and the gap has been bridged by the private sector. The bulk of R&D investment has traditionally come from the government, and this imbalance is being corrected, but nevertheless there is a case for increasing government investment.

    The substantial growth of the economy has not seen a commensurate increase in the establishment of more science and engineering universities and government R&D investment. Instead, we have seen a rationing of existing supply, with increased reservation of seats at the IITs and other centrally-funded universities, policies which can compromise merit and quality. We should be focusing on increasing capacity to such an extent that everyone has opportunity and nobody is left behind.

    Nanotechnology also presents some unique risk management challenges for health, safety and the environment. These real and perceived risks must be duly evaluated within a well-defined regulatory framework, else nanotech might go the way of genetically-modified foods. International cooperation has been strong in this area, and India should work with the international community to formulate appropriate standards.

    It is not just the dearth of financial capital which makes building nanotech and advanced materials businesses very difficult for entrepreneurs. Another severe constraint has been that of human capital – high-quality scientists and engineers, like Dr. Venkatraman Ramakrishnan, have frequently chosen to live and work abroad, given the lack of access to leading-edge equipment and low budgetary allocation for research in science and engineering. The Indian Institute of Science (IISc) and the Tata Institute of Fundamental Research (TIFR), two of the nation’s leading research institutions, were established by private trusts controlled by the Tata Group. Much before the IITs, the Birla Institute of Technology and Science (BITS), Pilani opened its doors in 1929 in the middle of the Rajasthan desert, offering courses in engineering from 1946. Indian science owes a lot to the vision of industrialists J.N. Tata, G.D. Birla and J.R.D Tata, who played key roles in the establishment of IISc, BITS and TIFR.

    If India’s best brains choose to work abroad, that’s where they also create new knowledge and technology. A self-perpetuating cycle begins, with talent gravitating towards places offering cutting-edge equipment and infrastructure, sufficient research funding and a high-quality pool of human resources. For most of the 20th century, the United States was that nation, and the US continues to be the world-leader in technology development and commercialization.

    The United States had a similar experience precipitated by the Second World War. Before and during the War, many leading European scientists fled the continent and made America their new home. Among them were titans like Albert Einstein and Enrico Fermi. Moreover, scientists from India and China also went west, with socialism in India and Maoism and the Cultural Revolution in China stifling the freedom and creativity of scientists like Dr. Ramakrishnan. The US became the destination of choice for the world’s top scientific talent.

    Today, Indian scientists, who are doing some of the most important scientific research work in corporate and academic laboratories abroad, are thinking of returning to their home country. India must capitalize on the converging trends of recent economic turmoil in the developed nations, the rise of a consumer class in Asia and the movement of the center of gravity for economic growth towards the Asian countries. Unforeseeable events and good fortune have presented us with a golden opportunity, and it must not be frittered away.

    China began changing its approach towards higher education in 1977, when Deng Xiaoping reinstated the Gao Kao university entrance examination system suspended by Chairman Mao. In the last three decades, China has become a hotbed of science and engineering research. According to data from the World Intellectual Property Organization, China was granted nearly 68,000 patents in 2007, while India did not even cross 8000 patents. China implemented over three decades ago the kind of reform India is attempting now under Education Minister Kapil Sibal, and the results are there for all to see.

    India is not just a technology deployment market. We have a rich history and culture of scientific inquiry and achievement and there is no reason for it to be any different in the future, but India needs to proceed on a war footing if it is to realize its potential to lead the world in technology development and commercialization. Unlike any other country, we have the scientific and entrepreneurial talent, and what is required is consistency and commitment in government policy. World-class research conducted by universities, higher-education institutions and national laboratories is a key ingredient to catalyze businesses built around nanotechnology. Policy for nanotechnology cannot be constructed in a vacuum and should be designed keeping in mind the accompanying environment where the research, which is the bedrock of this emerging technology, is conducted.

    This means ensuring that there are plenty of universities, and cultivating a culture of academic freedom and flexibility, the kind that Dr. Venkatraman Ramakrishnan enjoyed when moving from physics to biology. Errors made earlier which drove talent like Dr. Ramakrishnan’s away from the country must not be repeated. The existing environment has to be changed and it should be done not by piecemeal reform but wholesale liberalization. The government should be setting minimum standards for higher education institutions and playing the role of an incorruptible referee only. Once that happens, we will see a more thriving ecosystem of nanotechnology and advanced materials research, commercialization and entrepreneurship which will increase productivity, generate wealth and create employment.

    MarketWatch

    Nanotechnology is the design and engineering of materials at a length scale of below 100 nanometers to acquire materials properties which would otherwise not be achievable. Nanotechnology is an enabling technology and can be best understood as value chain of nanomaterials, which are used to make nano-intermediates such as fabrics, coatings, memory chips and mechanical components.  These nano-intermediates in turn go into creating unique nano-enabled products as diverse as stain-resistant apparel, machine tools with extraordinary strength, aerospace components that are lighter and more durable and electrodes which multiply the power and efficiency of batteries used in electric vehicles.

    Going by that working definition and standard, India does not have any noteworthy nanotech ventures. There are a few companies who claim to be manufacturing nanomaterials and nanotech-enabled products, but because of the hype associated with the sector, companies say they are in nanotech without really understanding the technology. Having said that, India does have a number of promising start-ups in the broader advanced materials space. I have personally seen some very talented teams and high-potential ventures at IIT Delhi, IIT Bombay and IIT Kharagpur in particular. Worldwide, the market size of nano-intermediates which allow for the development of unique nano-enabled products should grow from $29 billion in 2009 to $498 billion in 2015, a compounded growth rate of 61%, according to consulting firm Lux Research. In the nanotechnology value chain, nanomaterials manufacturing has been highly commoditized and has seen the entry of global chemical manufacturers. Building a nanomaterials business has proven to be difficult and start-ups in the US have learned the hard way. Increasingly, nano-intermediates seems to the space where new companies can create a niche by applying commodity nanomaterials manufactured by bigger players in innovative ways.

    The big success story to come from the nano-intermediates space is US-based A123 Systems, a manufacturer of lithium-ion batteries used in electric vehicles. Founded in 2001, A123 took an innovation in battery electrodes developed in the labs of MIT’s Dr. Yet-Ming Chiang and applied it for lithium-ion battery packs powering electric vehicles, offering better safety and performance characteristics at a competitive price. A123 Systems received venture investment of about $300 million from firms like Sequoia Capital, North Bridge Venture Partners, Procter & Gamble, CMEA Capital and General Electric. The company went public last year, and jumped 40% on listing on the NASDAQ. Even now, A123 boasts a market capitalization of over $2 billion.

    As Indian industry matures and becomes more competitive, Indian corporates too will look at adopting and assimilating leading-edge technologies in their products. It is also crucial to encourage market competition as a part of economic policy, because only then will larger corporates be driven to take risks and embrace innovation. It is no coincidence that sectors such as software, Internet and telecommunications, which see the the big chunk of venture investment and are among the more dynamic, innovative and high-growth sectors in India’s economy, are also the ones relatively less constrained by bureaucracy and red-tape.

    India’s ecosystem for nanotech and advanced materials companies is still evolving, and is relatively under-developed compared to other sectors such as Internet and mobile value-added services, but given the latent talent in the area and the investor appetite for themes and sectors separate from Internet and telecommunications, nanotech and advanced materials should see more entrepreneurial activity and venture capital investment in the coming years, assuming prudent policy-making in higher-education and the liberalization of the economy go hand in hand.

    Originally Published: http://navam.in/S7KRMI

  • Creating Social Capital In India

    Venture capitalists add value to an enterprise at many levels and are not just financial investors. Good venture capitalists invest in smart entrepreneurs and big opportunities, and also bring to the table their network of relationships and connections. India is a preferred investment destination among emerging markets and has oodles of bright and hungry entrepreneurs who have built world-class companies across industries.

    However, a culture of serial entrepreneurship and mobility of entrepreneurial talent across business sectors is absent. India’s social structure tends to promote business activity between people of the same community, and social class and family birth also influence one’s vocation, resulting in a dearth of what economists call “social capital.”

    In the entrepreneurship and start up world, it’s common to hear people talk enthusiastically about “developing the ecosystem,” which is the same as creating social capital. Early-stage venture investing remains very risky and difficult despite the fact that India is burgeoning with first-rate entrepreneurs. I think this is because of the dearth of social capital – social networks in India are centered around family and identity. A culture of trust which encourages cooperation and profit-motivated, self-interested action has only just begun to take root.

    Dynastic succession is one of the most pervasive and curious characteristics of Indian society, and can be befuddling to a casual observer. Whether it is business, politics, the fine arts or Bollywood, children inevitably do what their parents did, often with strenuous consequences for both the family and society. Some 3000 years have passed since the great war of Kurukshetra took place between the Pandavas and Kauravas to resolve a disagreement over succession and inheritance, and history continues to rhyme.

    Lateral entry into a vocation outside the purview of one’s family and identity remains difficult. As Warren Buffett might put it, capital allocation in India is determined by the “lucky sperm club,” those who are born in certain families and communities.

    Dynastic succession is not the most efficient way to allocate human capital. A poet who could have been an effective politician doesn’t necessarily make that choice, and a financier who could have made a better writer doesn’t pick that path. Talent ends up being sacrificed at the altar of societal norm, precisely because the opportunities for realizing one’s potential in “other” fields are very limited. In economist-speak, a Nash equilibrium exists and the net effect is that society becomes inertial and innovation is stifled.

    The more social capital India can form, the faster the rate of innovation and idea exchange and ultimately, positive change – and this applies as much to politics and Bollywood, as it does to the startup world. We can be sure that such change will be positive because open and vibrant ecosystems allocate resources far more optimally and democratically than the almost-feudal system in existence today.

    How can India create social capital? At the macro level, market competition creates social capital and trust. India is notorious among investment bankers for its low domestic mergers and acquisitions activity relative to the size of its economy, and it’s uncommon for small and medium-sized companies to sell themselves to larger competitors. Alok Kejriwal, entrepreneur and founder of Internet company Contests2win.com, recently told me that the absence of markets that encourage M&A and dearth of liquidity events can be a serious innovation-killer. Entrepreneurs who can’t get a good price for their company won’t sell, and pricing is distorted because of shallow markets and an inertial system that rewards continuity rather than change.

    Not being able to exit even if they want to means that instead of entrepreneurs owning their company, the company owns them.

    The antidote is meaningful economic reforms, which reward productivity gains and encourage competition. India’s legal and economic structures promote inertia, rather than productivity and fluidity. Bollywood, which was recognized as an industry by the BJP-led NDA government in 1998, is one of the most visible and least talked about success stories to benefit from pro-market policy.

    In the last decade, the film industry has become more organized and corporatized. Access to finance has reduced the influence of criminal elements and the infamous underworld. New talent has emerged and an industry which was once dominated by a few families is now far more democratic. Increased efficiency in movie production, distribution and marketing have grown the market for all and it has become possible to produce and release small-budget films which would have otherwise been commercially unviable.

    This growth can be replicated in other sectors. The Congress-led UPA government has reiterated its commitment on this front, but the question is whether it will actually do enough, or hide behind the excuse of protecting India’s “mango people” once again.

    At the micro level, the best way to create social capital is to pursue one’s dreams and ambitions, even if it seems difficult or impossible at first. Getting out of one’s comfort zone and trying new things, forming groups and organizations where none exist, and bringing together like-minded people whose values and ideas are aligned, though seemingly innocuous, can be deeply transformational. The generation of Indians that grew up through the watershed economic reforms of 1991 and the reform efforts of the NDA government from 1999-2004 is now coming of age. As has been captured by movies and popular culture, this generation is more confident, assertive and aspirational. Global investors and India’s “mango people” alike would be better off if they create social capital to dramatically alter India’s curious cultural calculus.

    Originally Published: http://navam.in/1x63b9U

  • Love’s Labour’s Lost

    Part 1 – Much Ado About Nothing

    Fortunately, not all talented Indians leave the country or are content with working in a cushy job at a prestigious firm. Some of them are crazy enough to start their own companies.

    The India story has been driven by entrepreneurs from the start. At a time when it is impossible to talk about economic development without using the words “inclusive” and “aam aadmi” or common man, it is instructive to recall a few examples of effective Indian entrepreneurship from typical “common men.”

    Reliance group founder Dhirubhai Ambani started his career working at a petrol pump in Yemen. Returning to India in 1958, Ambani found that there were government licenses, controls and rations for establishing and expanding business.

    Mr. Ambani went about working the system in a way that is now the stuff of Indian corporate legend. Obsessively quality-conscious and unabashed in his desire to grow, he did not think profit was a dirty word like India’s first prime minister. Through ingenious and sometimes controversial financial engineering, Reliance paid zero corporate income tax till 1996. The Minimum Alternate Tax, increased to 15% in this year’s budget, was introduced in that year to get companies like Reliance to pony up tax.

    From scratch, Dhirubhai built the first Indian private company to enter the Fortune 500. Against all odds, he created vast wealth for millions of Indians – since its public offering in 1977, Reliance shares have risen at a compounded annual rate of over 25%, beating even Warren Buffett’s Berkshire Hathaway record. Reliance has shaken up every sector it has entered besides its core petrochemicals business, be it telecoms, retail or entertainment, bringing down prices for consumers and growing the market for everyone. In a few decades, Reliance has become bigger than Indian business houses that have existed for centuries.

    Dhirubhai was an aam aadmi, and Dhirubhai was an entrepreneur. The growth of Reliance has included Indians from all sections of society.

    In the last decade, sectors such as telecommunications which have seen market-friendly policies being implemented have seen exponential growth. The vital role of prudent policy-making has been under-appreciated in the telecom growth story – for instance, in the 2000 government budget, import duty on mobile phones was slashed from 25% to 5%. The National Democratic Alliance government did not take the view that mobile telephony was a luxury good that should be taxed heavily. Instead, it allowed vibrant competition that has today ensured that every aam aadmi can afford a cellphone.

    The positive network effect of cheap and ubiquitous telecommunications on the Indian economy is staggering and incalculable. Sunil Mittal, founder of Bharti Airtel Ltd. who started his career selling bicycle components, is recognized worldwide for the innovation fostered by his company.

    Foreign investors from Japan, Singapore and the Middle East to Russia, Norway and the United Kingdom are scrambling to get a piece of India’s telecom pie, desperate to have every Indian farmer use their cellphone service. That India would have almost 500 million cellphone users was unthinkable in 1999. That it actually does, is not an accidental tryst with destiny but the product of prudent policy coupled with effective entrepreneurship.

    More recently, civil aviation has also seen a revolution of sorts. Reforms in the sector and the mushrooming of airlines have brought down ticket prices for consumers and dramatically enhanced air connectivity, knitting India closer together. Like mobile telephony, air travel was once the purview of the rich. Today, as an advertisement for a low-cost airline poignantly portrays, almost every am aadmi can afford to fly.

    The lesson is that promoting industry and high-technology through economic reforms should be high on the government’s agenda, rather than initiating venture capital funds for poultry and innumerable other welfare programs. The government should have a mindset of empowerment and skill enhancement, instead of making people dependent on handouts and freebies. Free markets alone can liberate India’s masses from perpetual poverty. India must not take economic growth for granted.

    India has many entrepreneurs with the skills and aptitude of Mr. Ambani and Mr. Mittal, some of whom are probably working for Google or DuPont. Without appropriate policy, the danger is that potential entrepreneurs might just spend their careers as content professionals. That would make for an epic Greek tragedy for India’s aam aadmi or mango people, to borrow a phrase from a recent Bollywood blockbuster.

    Originally Published: http://navam.in/1iTQF3B

  • Much Ado About Nothing

    Reading the business press in India can be much like reading a Shakespearean tragicomedy. I recently came across a news item that talked of the agriculture ministry’s efforts to set up two billion rupee poultry venture capital fund. According to an agriculture ministry official, capital subsidy, in the form of venture capital, was better than providing interest-free loans to farmers in the poultry sector.

    Elsewhere, an article published on the same day by a business newspaper spoke of how Intel’s latest Xeon processor was designed completely at the company’s Bangalore research center. Noshir Kaka, director at consulting firm McKinsey, says none of the major product companies who have an R&D presence in India can do without these development hubs. In fact, conducting cutting-edge research and expanding product development in India is high on the agenda of companies such as Google, Cisco Systems, DuPont, Renault and General Electric.

    Such is the dichotomy of the Indian growth story. On the one hand, the government appropriates the vocation of venture capital to provide capital subsidy for the poultry sector, and on the other hand talented Indian engineers are noted to be busy at work developing next-generation technology for global corporations.

    Indians create the fundamental technology for global firms which is re-imported back to India as a finished product, and the benefits of which are reaped in the long-run by the foreign shareholders of the companies, not Indian citizens. The global firms are enticed to set up shop in India usually with a slew of tax breaks, possibly contributing less to the government exchequer than Indian firms of a similar size.

    Shakespeare would smile at this comedy of errors.

    Not to be protectionist or to blame India’s engineers, because they are merely responding rationally to incentives. India has the capacity and talent to compete with the world’s technology leaders, but the government disincentivizes entrepreneurship.

    Even though the Finance Minister acknowledged in his budget speech that the growth from 2004-2008 was driven by private investment, there was precious little to reward that achievement in what is considered to be the government’s economic policy statement.

    It’s anything but easy being an entrepreneur in India, which ranks 122 on the World Bank’s Ease of Doing Business Index, behind both Serbia and Pakistan. Starting a business in India takes on average 12 procedures and 34 days costing 47% of per capita income, the World Bank says.

    The average medium-sized company in India also has to pay some 60 different kinds of taxes. Many people would probably throw in the towel just picturing the administrative burden of the paperwork. The effective total tax rate on profit, including central sales tax, corporate income tax, social security contributions and excise duty, amounts to 71.5%, the World Bank notes.

    Indian labor laws are antiquated, and continue to be a serious impediment to the growth of industry and manufacturing. Companies having over 100 employees can only retrench with government approval.

    The Indian banking sector remains dominated by government-controlled banks, and financial sector reforms have been long overdue. The bank nationalization of July 1969, praised munificently by the Finance Minister in the budget speech, politicized control over credit and loans and cemented the government’s grip on the economy, strangulating entrepreneurs.

    Despite the impressive growth of the IT sector and emergence of major manufacturing firms such as automotive components maker Bharat Forge Ltd., the stark reality is that the agriculture sector continues to employ 60% of the workforce while generating just 16% of GDP.

    Six decades of socialist economic policy have kept farmers in a time warp. The more the plans fail, the more the planners plan. A country that creates cutting-edge microprocessors prays for sufficient rainfall every year, and political parties craft populist policies precisely because of the disproportionate number of people dependent on agriculture. Not that these policies really help the intended recipients, if history is any guide, but populism usually never fails to win elections.

    One has to ask the question whether this condition is inescapable or self-inflicted. Is there a way to break this vicious cycle?

    Originally Published: http://navam.in/1pEPZqg