Reserve Bank of India (RBI) governor Raghuram Rajan on Monday made the case for “bare minimum regulation” to encourage start-ups. Start-ups are key to creating employment in the country, he argued.
“Let’s reduce regulation to the bare minimum for small firms and start-ups,” Rajan said while delivering the Y.B Chavan lecture at Mumbai’s Mantralaya that houses the administrative wing of the state government.
Rajan urged officials to sensitize themselves to the issues that small businessmen have to face in completing day-to-day tasks.
“A lot of officials, including myself, learn the difficulties of working in India as an aam aadmi only once we leave office and once we lose the assistant to the assistant to the assistant to the assistant,” he said.
“Perhaps one could ask senior officials to spend a day doing some task which a businessman would do but without revealing who they are and without enlisting the help of their assistants,” he added.
Rajan said start-ups are key to creating fresh jobs in the economy, adding that they need to grow into bigger businesses to keep creating employment. “There is no other (more) important issue today than how to create new jobs,” he said.
India has the third highest number of start-ups (an estimated 4,200-4,400), according to a October 2015 report by the country’s software lobby group Nasscom and Zinnov Consulting. These start-ups employ 80,000-85,000, the report said.
Listing out the essential conditions for a start-up to thrive and grow, Rajan said there should be a level-playing field in every way for small firms. He noted that conditions for entrepreneurs to start new businesses are improving in the country, but a lot more needs to be done.
“We need a cheap and quick exit policy for businesses,” said Rajan, adding that sometimes, the better answer for a small firm is to close down and redeploy the capital elsewhere.
The bankruptcy code, once passed and implemented, would address this issue, he said.
India is ranked 130 among 189 countries in the World Bank’s global rankings for ease of doing business. In the category of resolving insolvency, India is ranked 136 among the 189 countries. To improve this, the government is pushing for the passage of the bankruptcy bill, which is expected to go through this year.
Rajan further said adequate skill development opportunities need to be provided to ensure there is no dearth of talent for start-ups and small firms.
Another key element for small enterprises to flourish is access to finance, Rajan said. While noting that bank loan disbursals to small and micro firms are increasing, Rajan argued big banks are not really cut out to address the needs of small borrowers. Existing small private banks are more suited to meet the credit needs of small firms as decision makers in such banks are based close to where the small firms operate and are able to understand local conditions.
As small finance banks become operational, following the central bank’s decision to issue 10 such licences, access to funds for start-ups would become easier, Rajan said.
Punjab-based Capital Local Area Bank became the first small finance bank to begin operations this Sunday. The others are expected to launch later this year or early next year.
This article was first published on Livemint.com