Management Guru Peter Drucker once said: “Whenever you see a successful business, someone once made a courageous decision.” It is a simple statement that is a powerful reflection on what it takes to jump on the entrepreneurial roller coaster. Small businesses and the courageous individuals who head them power the country’s economy, providing employment to many and producing more than half its industrial output.
The country clearly has a lot riding on their success and it is that time once again when the government can demonstrate that it is committed to the sector. When the Union Budget is unveiled later this week for the next fiscal year, many small and medium businesses will nervously wait to see whether it will address some of their pain points when it comes to running their businesses.
Although business leaders and analysts have already weighed in with their ideas on what the budget should deliver for various sectors, I wanted to take a stab at my own wish list for the SMB sector.
Here are a few things that I would place at the top of this list:
More Accessible and Less Expensive Credit
Credit is not easy to come by for small businesses. Obtaining loans from banks is a process fraught with excessive paperwork, uncertainty, and the very real possibility of rejection for any number of reasons. Many businesses find it equally challenging to get funding from other sources, including private equity, venture capital and angel investors.
The high cost of credit also adversely impacts many businesses, increasing operating costs and squeezing margins. Opening up the credit taps for small businesses could mean more government support in the form of guarantees, a simplified loan qualification process and greater access to lower interest sources of funding.
Tax Incentives that Reward Entrepreneurship
The SME sector is one of the biggest employers in the country with a labor intensity that exceeds that of large enterprises. However, this huge employment generation potential is not completely recognized and rewarded under our present system of taxation.
A large number of SMEs are unincorporated entities that lack the status and pull of a formal organization. Hence, their contribution to the economy in terms of jobs and output often falls below the radar of the government’s tax incentive structure. An overhaul of this structure to cover more of the country’s SME units will go a long way in strengthening this backbone of our economy.
Lower the Cost of Doing Business
The International Finance Corporation (IFC) which maintains figures and rankings on ‘ease of doing business’ for economies across the world, has placed India 132 on a list of 189 countries for 2012. So we clearly have work to do on this front. Among the activities that the IFC examines the difficulty levels for in coming up with these rankings are starting a business, obtaining construction permits, registering property, enforcing contracts and paying taxes.
I recently watched a revealing interview with the Managing Director of a small manufacturing operation where he lamented the valuable daily time lost in compliance with various governmental regulations. For a small business, this translates into lost productivity that directly impacts the bottom line. By eliminating red tape and bureaucratic hurdles wherever possible, the government can lay the foundation for a small business friendly environment in the country.
More and Green with Technology Upgrades
The government already has a few helpful schemes in place to enable businesses to periodically upgrade their manufacturing equipment, IT infrastructure or other business-critical technology. Ideally, however, these credits should be extended to cover more categories of business infrastructure and equipment, including green energy and other upgrades designed to drive sustainability.
By encouraging the broader adoption of green technology, the government can provide momentum for its long-term goals in sustainable development. This may be a small wish list but it addresses the big areas where small businesses feel pinched and pressured. By taking a closer look at these and related measures, the government can send a clear message to the country’s entrepreneurs that it cares about their success.