India has growing startup culture—according to a NASSCOM report, the country has the fourth highest number of startups globally at 3,100; the number is expected to further increase to 11500 by 2020, according to estimates. However, the trend is not sustainable: more than 85% of all startups fall by the wayside due to various reasons, such as financial crunch or lack of viable business model. It is imperative the Government provides for incubation centers for startups and provide them institutional support. Moreover, such small enterprises work on limited budgets and the cashless drive has brought in cash crunch.
MSMEs need institutional support from Finance Minister
One of the pillars of Indian economy is the SME sector. It is the backbone of Indian economy and employs over 40% of India’s labor force. They carry out the most numerous business transactions in their day-to-day functioning. Over 30% MSMEs are in manufacturing, while the rest are in services sector (Source: Ministry of Micro, Small & Medium Enterprises Development). If the Government’s Make in India has to succeed then it will need to push more MSMEs into manufacturing and create favorable business climate for such a transition. Due to the sector’s size, the success of policy measures like demonetization and the GST hinges on SME sector. For a digital strategy to succeed, SMEs will have to see digital route as viable option.
Startups and SMEs seldom get their due
Despite their significance, SMEs and startups get neglected. They are victims of institutional neglect and face issues like electricity and water permits, lackadaisical attitude, red tape, and insufficient financial support. Consequently, India fares poorly on global ease-of-doing-business rankings—it ranks 130 among 189 countries on international rankings released by World Bank. Singapore tops list, whereas Nepal and Sri Lanka fare better, placed at 99 and 107, respectively.
“Running a business in India continues to be tough. Easy finance eludes the sector in need of drastic intervention. Moreover, the sector is unorganized and unregulated. This time around Finance Minister Arun Jaitley should ensure the sector gets its due,” said Shashank Dixit, CEO, Deskera.
With the Goods and Services Tax (GST) on the anvil, the Indian Government should ensure the transition is painless for small businesses and startups as they lack financial resources and getting on with tax compliances could be difficult for them. The government needs to ensure the technology required for the shift is in place so that enterprises can tackle the GST when it arrives.
Budget should provide incentives to startups and MSMEs
Looking at the big picture, Union Budget 2017 must support SME sector so that the impact of demonetization is watered down. For inclusive growth of the economy, there is urgent need to create favorable business climate and environment for SMEs in India.