Economist and author Piya Mahtaney, on the impact of current economic crisis on entrepreneurship in India

10th Sep 2013
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The economic crisis facing our country is a real cause for concern. The appointment of Raghuram Rajan as the new RBI governor makes many think he has the brains and the good looks to bail us out of this soup. As we wait to find out what the RBI governor can do, YourStory decided to do some asking around with an authority on the subject of economics.

Piya Mahtaney is an economist and an author. She has completed her double Masters – one in the subject of Development Economics from Leicester University, England. She was a journalist for a brief period, before giving it up for her love of teaching economics and writing. She has penned down three books on the subject so far: Globalisation Con Game or Reality, 2004; India China and Globalisation, 2007; and Sustainable Development and Globalization, 2013. We spoke to Piya on her thoughts about how entrepreneurship can survive in the tough environs of recession and her prediction on when India will be out of the present crisis. Excerpts.


Piya Mahtaney

YS: Role of entrepreneurship in globalization and economic development in IndiaPiya: Entrepreneurship in India needs to be understood a little more. We are reminded of the wonders of entrepreneurship when something sensational happens, but we often overlook the immense potential waiting to be tapped in the rural economy, in the unorganized sector, informal sector which has not been tapped for two reasons. One is the lack of proper financial mechanism and training. When we talk about entrepreneurship in India, the easiest way to make my point is to mention technology. IT and the advantage it gave India was a certain buildup, in terms of skill development, engineering that took place 20 years before it became a competitive strength. For a moment if we were to pause and think, there are so many skills and core competencies, some of which we may even be aware of, and -- if tapped properly, might lead to over 1 or 2 decades of growth -- something as dramatic as what IT did for India.

When we look at innovation, at entrepreneurship, we are thinking even today of a certain minimum scale, whereas India’s potential lies in the micro innovations that have not happened. The micro finance space certainly should be worked upon, and in the micro enterprises space, which is an extension of the unorganized sector. That is where the future of India’s entrepreneurship lies.

It is as important to tap entrepreneurship in the micro, small scale, unorganized and informal sector, in a manner that the entrepreneurs there get a reward for their ability, and can hone his skills with some training. Energy sector is another such untapped sector.

Entrepreneurship innovation has to be related to the constraints that a country has. India has two constraints -- lack of financial capital and the lack of execution of many good ideas. Ideas remain niche because they are not worked up, many innovations in this world would have remained niche, if they were not worked upon and brought out. Whether it is energy, fertilizers, social innovations -- many innovations remain untapped because of lack of finance.

All the innovations that I am talking about need not necessarily been technological, but so far as they can enable people to overcome the constraints in that particular field in a cost effective way, it is an opportunity for entrepreneurship.

YS : Your wishlist of measures that the Indian government should consider to encourage startups in India

Piya: 1. Have an innovation strategy that will be specifically targeted towards small scale micro-enterprise sector particularly in the rural and semi-rural economy.

2. Create skill development programs and training designed to foster this.

3. Provide proper infrastructure in terms of credit, marketing and storage. And in this context the need to evolve financial innovation models, based on micro-finance that can effectively deliver capital to those enterprises with innovative potential in the rural economy and semi-rural economy.

4. Look at the risks and returns of innovation that lies outside technologically advanced sectors.

5. Social innovation and micro enterprise financial innovation should work together.

YS: When will the present crisis end?

Piya: I don’t anticipate the current crisis will last for more than 6 months. There are two factors at play here – what is going on in the current economy and the looming elections. It will definitely lead to some decision making that will certainly stabilize the crisis. You will not see concrete measures to tackle the structural issue until actual election. Then we have to see the outcome of the elections. Whoever comes to power will have to deal with structural issues as it can no longer be brushed under the carpet. You will definitely see a more stable Rupee in the next 6 months. I will give the stabilizations measures to happen and for startups to come out of this credit concern – another 6 months to a year.

Micro-finance has huge potential in India, which I don’t think has been tapped enough in this country. If micro-finance is tapped, and aligned with sectors that it was not previously associated with, and if VCs can do that, it would be definitely useful in at least overcoming partly the capital constraints.

YS: Biggest concerns about the Indian economy

Piya: What we call a crisis today began two years back. It began with increasing levels of inflation, in a scenario where there was not actually a supply constraint and when there certainly wasn’t a deficiency of demand. There were bottlenecks as far as infrastructure was concerned, or distribution. Essentially the cause of inflation that began about 3 years back was structural issues.

This crisis that we see, manifesting itself by the fall of Rupee or by the expanding current account deficit is actually structural. How we interpret it is important. First and foremost, this is not a result of the global economy. What’s happening in the global economy has certainly accentuated what was already happening in the Indian economy, but it has not caused the problem. Complete lack of investment, in areas where it is required the most, should have been addressed 5 years back. Infrastructure projects should have been implemented on a fast track basis 5 years back. The structural concerns that were responsible for rising levels of inflation should have been addressed at least partially, 5 years back.

The strength of the Rupee was based on factors -- the balance-of-payments (BOP) situation, which was pretty good 4 years back and FII inflow. Most of the FII inflows that came in were short term inflows on BOP and it was good 5 years back. It should have been used as an opportunity to make constructive investments and that could have at least partially bridged the gap, but it didn’t happen.

You have to improve the investor outlook for the domestic investor, which has eroded. What has to stop is making unproductive political decisions and funding those political decisions. We have to start plugging all the structural weakness, what I am concerned is how long will it take from here. Economic reform has to start right away.

Priya did a private book reading for us from her recent release - Sustainable Development and Globalization. Hear the reading here:

 

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