E&Y Entrepreneurship Barometer, Part 2: INDIA - Country Digest

8/3/2019 E&Y Entrepreneurship Barometer, Part 2: INDIA - Country Digest

1/12

Entrepreneurs speak out

A call to action for G20 governments

The Nice Cte dAzur 2011Entrepreneurship Barometer

Produced for the G20 Young Entrepreneur Summit,

October 2011

Growing Beyond

Country digestArgentina

Australia

Brazil

Canada

China

France

Germany

India

Indonesia

Italy

Japan

Mexico

Russia

Saudi Arabia

South Africa

South Korea

Turkey

United KingdomUnited States

European Union


2/12

TendencyWeighted score:

higher quartile

Weighted score:

lower quartile++

+

Deterior

ated

I

mproved

ViewpointDilip Shanghvi

Chairman and Managing Director,

Sun Pharmaceutical Industries

Ltd, India

Dilip Shanghvi founded Sun

Pharmaceutical Industries in 1983

with seed capital of just US$2,500. Today, the pharmaceutical

company has revenues of US$1.3 billion and manufacturing

locations on five continents.

In India, I think we need to encourage students

entrepreneurial spirit and risk-taking capability in schools

and colleges. Nevertheless, it is common for young people

to start businesses after spending time in a large company.

We need to recognize this as a process that people follow,

and come up with a methodology to help them make this

transition.

A great motivator for people is when someone they know

becomes successful. Hence, achieving a critical mass in

terms of the number of people who become successful is

important. We need a range of approaches and processes to

create a network of mentors to help people solve problemsand find advice.

For those who make the leap and have a good idea, access

to PE funding has improved. However, for small companies,

regulatory delays can make the difference between success

and failure: access to some of the benefits they are supposed

to receive doesnt happen in time. The proposed Goods and

Services Tax [GST] could completely change the landscape

for entrepreneurs it will streamline and unify taxes across

the country.

The perception barometerThis study focuses on the entrepreneurship environment of

G20 countries through the lens of ve fundamental enablers:

entrepreneurship culture; education and training; access to funding;

regulation and taxation; and coordinated support.

Through these enablers, we explore the climate for entrepreneurs in

the G20 countries and the likely direction things will take.

Our original approach is based on:

Quantitative economic indicators

The opinions of entrepreneurs on the progress and impact of

specicenablers

Our perception barometer sums up progress as evaluated by more

than 1,000 entrepreneurs during the last ve years, using four

score ranges.

The analysis of these indicators and opinions also highlights how

entrepreneurs perceptions may differ from the latest economic

gures; a divergence that may be due to cultural bias, derivative

ideas or lack of information. Red tape can also present challenges

when it comes to accessing sources of funding.

These gaps in perception raise a call to action for governments to

tackle these specic issues.


3/12

1Entrepreneurs speak out The Nice Cte dAzur 2011 Entrepreneurship Barometer | India digest

Strengths One of the fastest-growing economies

Strong entrepreneurial environment

Availability of bank lending is very strong

Growth across all funding instruments

Weaknesses Business start-up costs are highest in the G20

as a percentage of per capita income

Opportunities Proposed tax reforms, if implemented, could relieve

some of the tax burden on entrepreneurs

Threats India is looking to curtail credit growth as part

ofeffortstocontrolination,andsteadilyrising

interest rates could constrain entrepreneursaccess to bank credit

The impact of proposed widespread changes inregulatory and tax policy is not fully clear

The Nice Cte dAzur 2011 Entrepreneurship Barometer by Ernst & Young

Generalandspecicfactorsinuencingthe

entrepreneurship environment

IndiaGreat potential for opportunities

Indianentrepreneursneedtobeexibletograbtheopportunities

offered by Indias rapid economic growth and development.

However, it seems this potential hasnt fully been grasped:

only one-third of the Indian respondents rated their country

as the most favorable business environment out of the G20.

Thisshowsonlyamoderatedegreeofnationalcondence,which

isreectedinthenumberofnewbusinessregistrations.Indeed,

it ranks lower than the average of the G20 countries and

rapid-growth markets.

Looking across the different enablers of entrepreneurship,

Indian entrepreneurs are in a great position to access funding,

and the regulatory environment, while in some ways challenging,

is much improved. The culture of entrepreneurship is one of thecountrys greatest strengths.

New business registeredIndia compared to G20 and rapid-growth market average

Source: World Bank. Data not available for US, China and Saudi Arabia.

0

100,000

200,000

2005 2006 2007 2008

India Rapid-growth market averageG20 average


4/12

2 Entrepreneurs speak out The Nice Cte dAzur 2011 Entrepreneurship Barometer | India digest

Indian entrepreneurs were more convincedthan those in other G20 countries that

the positive image of entrepreneurs in

the media has had a high impact on the

perception of entrepreneurship over the last

ve years. Looking ahead, the vast majority

of Indian entrepreneurs thought improving

communication around entrepreneur

success stories would have a high impact on

the entrepreneurship culture over the next

three years.

Despite the lowest level of R&D expenditurein the G20 average, several organizations

are making pioneering moves in innovation,

of both products and processes, in order

to be able to service Indias fast-expanding

market in a cost-effective manner.

India has an extremely strong entrepreneurial culture,

perhaps the strongest out of any G20 country, at leastin terms of the perceptions of its own entrepreneurs

98% of whom agreed with the statement that Indian

culture encourages entrepreneurship. This is the highest

percentage believing this about their country in the G20.

Entrepreneurship cultureThe strongest entrepreneurial culture

Do you think that the culture of your country

encourages entrepreneurship?

Source: The Nice Cte dAzur 2011 Entrepreneurship Barometer

by Ernst & Young.

Disagree

2%

Agree

98%

Mature markets: 72%

Rapid-growth markets: 80%

1. G20 average based on the 17 countries for which data is available for 2007.2. G20 average based on the 13 countries for which data is available for 2007.

98% agreed Indian culture encouragesentrepreneurship the top rate in the G20

India G20 average

Innovative environment 2007 Change200507

2007 Change200507

R&D expenditure (% of GDP) 2005-071 0.8 0 p.p. 1.5 +0.14 p.p.

Scienticandtechnicaljournalarticles(number of publications)

18,194 24.3% 31,376 +6.0%

Researchers in R&D (per million of population)2 n.a. n.a. 2,340 +0.5%

n.a.: data not availablep.p.: percentage points

47% saw business failure as a learning opportunity


5/12


Yes

67%

No

31%

Cant say

2%

Mature markets: 59%


Education and trainingEntrepreneurs education gains

Specic courses and business schools alsoseem to have improved, say 76%, while

75% praised the perfecting of coaching

programs. However, little credit is given

to dedicated training, as only 67%

thought specic training helped. This

score was under the 80% average for

rapid-growth markets.

Over the last ve years, severalGovernment programs were launched to

encourage and promote entrepreneurship

by organizing workshops, national seminars

and funding of entrepreneurship-related

education. The National Skill Development

Corporation (NSDC) is a not-for-prot

company set up by the Ministry of Finance.

It is a pioneering public-private partnership

(PPP) set up to facilitate the development

and upgrading of the skills of the growing

Indian workforce through skill training

programs.

In addition, a National Policy on SkillDevelopment was formulated by the

Ministry of Labor and Employment

and approved by the Cabinet on

23 February 2009. The objective is

to create a workforce empowered

with improved skills, knowledge and

internationally recognized qualications

to gain access to employment and ensure

Indias competitiveness in the dynamic

global labor market.

India G20 average

2008 Change200508

2008 Change200508

Public spending on education, total(% of GDP) 200506

3.1 0 p.p. 4.8 +0.3 p.p.

School enrollment, secondary (% gross) 60.0 +5.8 p.p. 95.9 +1.6 p.p.

School enrollment, tertiary (% gross)2005-07

13.5 +2.5 p.p. 53.5 +1.0 p.p.

Tertiary-type A and advanced research

programs (number of graduates)3 n.a. n.a. n.a. 8%

3. Based on 11 countries for which data is available.

Do you think that students need to follow specific

training to become entrepreneurs?


by Ernst & Young.

Alargemajorityofourpaneldescribedrealprogressin

theeldofentrepreneurshipeducation.Anoverwhelming

80% cited developing entrepreneurship conferences and

seminars.

67% 94%of our respondents feel that studentsneedtofollowspecictrainingtobecome

entrepreneurs

of entrepreneurs think that promoting success stories

to students is a key priority to improve studentperception of entrepreneurship as a career option



6/12


Surprisingly, 80% of Indian entrepreneursreported an improving access to bank loans.

This change can be explained by Indias

banking sectors limited exposure

to international markets. However,

steadily rising interest rates could weigh

on lending growth in the future.

This situation could become an issue.

Indeed, many respondents thought

bank loans would have a high impact on

improving entrepreneurship over the next

three years.

The stock market and IPOs were seen

to have improved in terms of the access

to funding they provide by 76% and 67%

of Indian entrepreneurs.

A very large majority (80%) of the

entrepreneurs we interviewed reported that

funding from PE had improved since 2005.

The PE deal value grew massively over

the period, from US$961 million in 2005

to nearly US$6 billion in 2010. Venture

capital (VC), of all funding instruments, was

reported to have improved by the greatestproportion of respondents, with 88% of

those we talked to having this opinion.

Indeed, the deal value of VC equity invested

in India was up 173% over the period.

For 61%, access to funding from business

angels had improved a smaller proportion

reporting improvement than for some

of the other funding instruments,

indicative of the relatively smaller role

business angels play in India. This is incommon with other rapid-growth market

countries, where business angels tend not

to play as large a role as in the mature

markets. For 63%, access to funding from

public aid had improved. Nonetheless,

less than a third viewed public aid as likely

to have a high impact, looking ahead.

IndiaPerceptionbarometer200510

G20 averagePerceptionbarometer200510

2010 Change200510

2010 Change200510

Business angels (number of networks)4 n.a. n.a. + n.a. +48% +

Venture capital (VC) (US$m) 1,349 173% ++ n.a. +17% +

SME bank loans (% of GDP) 4.3% n.a. ++ 14.1% n.a. +

Private equity (US$m) 5,989 523% ++ n.a. -22% +

SME stock markets (number of listed companies) n.a. n.a ++ n.a. +22% +

IPOs in main stock market (number of deals) 63 +21% + n.a. +12% +

IPOs in SMEs stock market (number of deals) n.a. n.a n.a. -33%

Alongside undeniable improvements in funding access in India from 2005 to 2010,

67%ratedaccessasdifcultoverall.

Access to fundingImproving but still tough

Funding instruments in IndiaPrivate equity and IPO

Source: Thomson ONE and Bombay Stock Exchange.

0

500

1,000

1,500

2,000

2,500

0

1,000

2,000

3,000

4,000

5,000

6,000

7,000

8,000

9,000

2005 2006 2007 2008 2009 2010

Capital raised by IPO, BombayStock Exchange (US$m) (left scale)

Sum of equity invested(US$m) (right scale)

n.a.: data not available

4. G20 average of the seven countries for which data is available through The European Trade of Association for Business Angels (EBAN).

80% of Indian entrepreneurs reportedimproved access to funding 523%growth has been registered in private equity (PE)investment since 2005


7/12


It has become much easier to starta business, according to 71% of the

entrepreneurs we spoke to. Although

the number of procedures required to start

a business has actually increased by one

since 2005, the number of days it takes has

dropped by a massive 42 to reach 29 days

in 2010. The cost of starting a business

has also reduced, by 5.5% of per capita

income although this remains the highest

gure out of any G20 country, at 56.5%

of per capita income, largely due to India

having the lowest level of per capita income

in the group. Similarly, the minimum capital

requirements are highest in the G20 as a

percentage of per capita income, but these

have seen impressive reductions over the

period, registering a 163% drop.

However, tax incentives were the onlyregulation and taxation measure that

more of our survey respondents thought

had deteriorated than those who thought

it had improved. Time spent on tax issues

has slightly declined over the period, by

6 hours per year to 258 however, there

remains much room for further reductions

to alleviate the burden on enterprises.

The implementation of the twin tax policy

initiatives in India the Direct Taxes Code

(DTC) and the Goods and Services Tax

(GST) would be signicant in removing

the current complexities and bringing

simplicity, efciency and greater certainty

in the tax laws for businesses in general,

and small and medium enterprises (SMEs) in

particular. These reforms would rationalizethe tax structure, reduce transaction and

compliance costs and would be instrumental

in reducing the litigation and controversies

that presently surround the tax systems in

India. Thus, the tax regulatory environment

for doing business in India is expected to

improve considerably.

India G20 India G20 average

Perception barometer200510

2010 Change200510

2010 Change200510

Innovation incentives + + Tax subsidy rate for US$1 of R&D, SMEs 2008 0.269 n.a. 0.148 n.a.

Tax incentives - + Start-up incentives (% of GDP) 200508 n.a. n.a. n.a. n.a.

Ease of starting abusiness

++ + Number of procedures to start a business 12 +1 7.7 -1.4

Time to start a business (days) 29 -42 22.3 -18.1

Cost to start a business (% income per capita) 56.5 -5.5 p.p. 10.6 -9.8 p.p.

Intellectual property

(IP) protection

+ + Number of patents 2005095 34,287 +39.9% 126,375 +9.2%

Business regulation + + Time spent on tax issues (hours per year) 258 -6 367.1 -72.4

Labor market rigidity + + Cost of hiring 0.16 n.a. 0.3 n.a.

Notice period 4.3 n.a. 5 n.a.

Severance cost 11.4 n.a. 12.2 n.a.


India has considerably improved its regulation and taxation environment for

entrepreneurs. However, barriers remain, and varying opinions were gathered

on regulation and taxation trends.

Regulation and taxationA noticeable progression

29 71%days were necessary in 2010 to start a businessin India, a drop of 42 days since 2005 stillrecommendfurthersimplicationofprocedures to start a business

5.G20averagebasedon12countriesandEuropeanPatentOfceforwhichdataisavailablein2005and2009.


8/12

How would you evaluate the coordinationbetween governments, associations

and education systems in your country?

Source: The Nice Cte dAzur 2011 Entrepreneurship

Barometer by Ernst & Young.

Well coordinated

24%

Poorly coordinated76%

Mature markets: 41%



Coordinated supportQuality acknowledged, coordination in progress

Entrepreneurs clubs and associations, and mentoring

programsareperceivedasthemostefcientsupportfor

entrepreneurs long-term growth in the next three years.

Many Indian entrepreneurs acknowledgethe quality of support provided in

their country. On the positive side,

entrepreneurs clubs and associations

have improved, say 84% of our

respondents. Two-thirds mention the

development of chambers of commerce.

That said, they were not so enthusiastic

about coordination: 76% mentioned poorly

integrated help, with India scoring the

highest of the rapid-growth market

in this area.

Indian entrepreneurs were split 50:50 on

the question of whether entrepreneurs

benet from tailored support. However,

for those who did believe they beneted

from such support, 84% regarded this

support as efcient. One example of

tailored support provided in India is the

Technology Incubation and Developmentof Entrepreneurs (TIDE). This scheme

was initiated by the Department of

Information Technology (DIT) with

the broad objectives of setting up and

strengthening technology incubation

centers in institutions of higher learning;

nurturing technology entrepreneurship

development for commercial exploitation of

technologies developed by them; promoting

product-oriented R&D; encouraging

development of indigenous products and

packages; and bridging the gap between

R&D and commercialization. At present, the

scheme is being implemented at 15 TIDE

centers. It was launched in late 2008 and

proposes to support 27 TIDE centers and

2 virtual incubation centers over a period of

four years.

Coordinated support entrepreneurs perception of progress and future impact

Source: The Nice Cte dAzur 2011 Entrepreneurship Barometer by Ernst & Young.

Chambers of commerce

Entrepreneurs

clubs and associations

Government agencies

Incubators

Mentoring program

60.0

80.0

10.0 20.0 30.0 40.0 50.0 60.0

Impactofnextthreeyears

Progress of last five years

84%described better entrepreneurs clubs andassociationsbut76%mentionedaninefcient

coordination of business support

Do young entrepreneurs benefit from tailored

support in your country?


by Ernst & Young.

Yes

49%

No

49%

Cant say

2%

Mature markets: 42%


49%notice a lack of tailored support programs foryoung entrepreneurs


9/12


Launch date Main application area

Rajiv Gandhi Udyami Mitra Yojana (RGUMY)

TheobjectivesofRGUMYaretoprovidehandholdingsupport,assistanceandinformationto

rst-generationentrepreneurs,aswellasotherexistingentrepreneurs,andtohelptheminaccessing bank credit.

2008 Coordinated support,

entrepreneurialculture

Goods and Services Tax (GST)

LaunchedinApril2011,theaimoftheBillistocreateasingleanduniedIndianmarket.This measure will reduce compliance costs and make the tax regulatory environment for SMEs easier.

2011 Regulation andtaxation

Credit Guarantee Fund Scheme for Micro and Small Enterprises (CGMSE)

The Ministry of Micro, Small and Medium Enterprises (MSME), launched the Credit Guarantee FundScheme for Micro and Small Enterprises (CGMSE) so as to strengthen the credit delivery system andfacilitatetheowofcredittothemicroandsmallenterprise(MSE)sector.TheCGMSEseeksto

reassure the lender that, in the event that an MSE unit, which has availed collateral-free creditfacilities, fails to discharge its liabilities to the lender, the guarantee trust will make good the lossincurred by the lender by up to 75%, 80% or 85% of the credit facility.

2000 Access to funding

Technology Incubation and Development of Entrepreneurs (TIDE)

This scheme was initiated by the Department of Information Technology (DIT) with the broadobjectivesofsettingupandstrengtheningtechnologyincubationcentersininstitutionsofhigher

learning; nurturing technology entrepreneurship development for commercial exploitationof technologies developed by them; promoting product-oriented R&D; encouraging developmentof indigenous products and packages; and bridging the gap between R&D and commercialization.At present, the scheme is being implemented at 15 TIDE centers. Eventually, the scheme proposesto support 27 TIDE centers and 2 virtual incubation centers over a period of four years.

2008 Access to funding,coordinated support

Trade Related Entrepreneurship Assistance and Development (TREAD)

The scheme envisages economic empowerment of women through development of theirentrepreneurial skills in non-farm activities.

19972002(ninthve-yearplan)

Access to funding,coordinated supportentrepreneurialculture, education

and training

Selection of government leading practices


10/12


Methodology

For this rst edition of the EntrepreneurshipBarometer, our analysis of the G20 country

environment is articulated around

the ve enablers (access to funding,

regulation and taxation, education and

training, entrepreneurship culture,

coordinated support) dened by the G20

Young Entrepreneurs Alliance (YEA) in

Toronto, Canada (2022 June 2010).

Our analysis is based on four building

blocks: macroeconomic indicators, a

perception survey conducted across the

G20 countries, qualitative interviews of

emblematic entrepreneurs and an analysis

of G20 governments leading practices.

Throughout this report, we have used the

following denitions:

Young entrepreneurs are young women

and men aged between 18 and 40

The split of country groupings

between mature markets (MMs) and

rapid-growth markets (RGMs) is based

on the denition provided by the

International Monetary Fund (IMF) As no single denition is shared across

all the G20 countries for small and

medium enterprises (SMEs), we have

adopted each countrys respective

denition

We conducted a perception survey with an

international panel of 1,001 entrepreneurs

across the G20 countries (50 interviews per

country). The eld research was conducted

by CSA Institute between 27 May and

7 July 2011. The perception barometerwas calculated using a weighted average of

country performance scores.

Our quantitative analysis is based on the following economic indicators:

Access to Funding

Business angels

Number of business angel networks [EBAN]Venture capital (VC) fund-raising

Equity invested (US$m) [TO]SME lending

Loan value (% of GDP) [WB]Private equity (PE)

Deal value (US$m) [DL]

SME stock markets

Value of shares trading (US$m) [WFE] Number of listed companies [WFE]

Broad public stock market

Value of shares trading (US$m) [WFE] Number of listed companies [WFE]

Initial public offering (IPO) broad and junior

market activity

IPO number of deals [DL] IPO capital raised [DL]

Entrepreneurship culture

Innovative environment Research and development expenditure (% of GDP) [WB] Scientic and technical journal articles (per million of population) [WB] Researchers in R&D (per million of population) [WB]

Regulation and Taxation

Tax subsidy rate for US$1 of R&D SMEs [OECD]Start-up incentives (% of GDP) [OECD]

Starting a business

Number of procedures [WB] Time (days) [WB] Cost (% income per capital) [WB] Minimum capital (% income per capital) [WB]

Number of patents [WIPO]Time spent on tax issues (hours/year) [WB]Cost of hiring, severance cost and notice period [WB]

Education and Training

Public spending on education, total (% of GDP) [WB]School enrollment, secondary (% growth) [WB]School enrollment, tertiary (% growth) [WB]Tertiary-type A and advanced research program (number of graduates) [OECD]

Sources: Dealogic (DL), World Bank (WB), European Business Angel Association (EBAN), World Federationof Exchanges (WFE), World Intellectual Property Organization (WIPO), Capital IQ data (CIQ), Organization forEconomic Cooperation and Development (OECD), ThomsonOne (TO).

Further details can be found in the methodology section

of The Nice Cte dAzur 2011 Entrepreneurship Barometer

by Ernst & Young.


11/12

1 Throughvekeyenablers,theEntrepreneurshipBarometeranalyzesentrepreneurs perception as well as government leading practices inorder to provide key recommendations to governments and entrepreneurs.

2 Thecountryprolesexplorethenationalspecicitiesofentrepreneurshipenvironment to provide a better understanding to entrepreneursconsidering international expansion.

3Highlighting the main conclusions of the report, the Barometer websiteprovides further government leading practices and entrepreneurssuccess stories.

www.ey.com/entrepreneurship-barometer

Entrepreneurs speak outA call to action for G20 governments


12/12

Ernst & Young

Assurance | Tax | Transactions | Advisory

Contact

Farokh Balsara

India Strategic Growth Markets Leader

Tel: +91 22 6192 0280

Email: [email protected]

About Ernst & Young

Ernst & Young is a global leader in assurance, tax, transaction

and advisory services. Worldwide, our 152,000 people are

united by our shared values and an unwavering commitment to

quality. We make a difference by helping our people, our clients

and our wider communities achieve their potential.

Ernst & Young refers to the global organization of member firms

of Ernst & Young Global Limited, each of which is a separate

legal entity. Ernst & Young Global Limited, a UK company limited

by guarantee, does not provide services to clients. For more

information about our organization, please visit www.ey.com.

2011 EYGM Limited.

All Rights Reserved.

EYG No. CY0195

In line with Ernst & Youngs commitment to minimize

its impact on the environment, this document has been

printed on paper with a high recycled content.

This publication contains information in summary form and is therefore intended for

general guidance only. It is not intended to be a substitute for detailed research orthe exercise of professional judgment. Neither EYGM Limited nor any other member

of the global Ernst & Young organization can accept any responsibility for loss

occasioned to any person acting or refraining from action as a result of any material

in this publication. On any specific matter, reference should be made to the

appropriate advisor.

The opinions of third parties set out in this publication are not necessarily the opinions

of the global Ernst & Young organization or its member firms. Moreover, they should

be seen in the context of the time they were expressed.

Growing Beyond

In these challenging economic

times, opportunities still exist for

growth. In Growing Beyond, were

exploring how companies can best

exploit these opportunities byexpanding into new markets, nding

new ways to innovate and taking

new approaches to talent. Youll

gain practical insights into what you

need to do to grow. Join the debate

at www.ey.com/growingbeyond.

This report has been produced in collaboration with

Oxford Analytica (www.oxan.com), an independent

consultancy that has for over 35 years provided

authoritative analysis of the macro environment.

Documents

E&Y Entrepreneurship Barometer, Part 2: INDIA - Country Digest