In order to achieve our mission of making Mass Entrepreneurship (ME) a nation-wide movement, GAME believes that a certain kind of transformation needs to be effected. There are a number of fundamental ideas behind GAME’s Theory of Change.
India has about 63 million MSMEs.
It’s a pyramid with a huge base of stunted, unproductive firms, a small number of large, modern enterprises and a missing middle. The inability of a large number of our small firms to grow into mid-size ones and some mid-size firms to become large enterprises creating great wealth, and this success inspiring the entry of millions of new entrepreneurs, is a primary reason for lack of new jobs in the economy. At GAME, we call this the “growth-escalator” and this escalator is broken. It has been broken for a long time.
Research shows that there are two primary reasons for this. First, very few entrepreneurs are growth-oriented; most are ‘necessity-entrepreneurs’. Entrepreneurship is still not aspirational and what passes for entrepreneurship is self-employment which is also largely disguised unemployment. Most of these tiny firms are stuck on an existential treadmill struggling to survive as they are buffeted by headwinds ranging from, the seemingly complex GST, a slowing economy COVID-19 and delayed payments. (Report on Delayed Payment)
The second factor is widespread informality among India’s small businesses due to the high cost of formalization: The majority of India’s 63 million firms are informal; fewer than 20% are registered for GST for instance. Informality precludes small businesses from accessing government schemes, borrowing at viable interest rates, and their access to fair arbitration on occasions when it’s needed. Research has shown that informal firms stay informal and stunted; it also shows that firms that start out formal are two to three times more productive and have a better chance of growing; so India must incentivize formalization. The reason why most firms prefer to start or remain informal is because the cost of formalization and compliance is onerous across all states. A typical MSME factory must file for 23+ registrations and licenses, 750+ compliances, and 120+ filings per annum; with labour regulations alone accounting for more than 50% of these filings. Many of these are opportunities for rent-seeking by corrupt officials. So a dramatic real improvement in the ease of doing business is critical for formalization.
We believe for India’s economy to grow at reasonable rates and create adequate employment and prosperity, we need to fill in this “missing middle’’ with millions of more enterprises that are growth-oriented, start out formal, and are capable of growing to mid-size or large firms. The “growth escalator” – by which we mean the favourable conditions that create such growth – has to be restarted.
GAME can support restart this process and this in turn requires:
1. Building thought leadership
2. Creation of strategic partnerships
3. Engaging with influencers and work on policy advocacy with governments at the national and state levels
4. Support pilots or sandboxes for innovative solutions
5. Help scale replicable models
6. Pioneer programmes for enterprise growth & profitability
And such efforts spearheaded by GAME would lead to the following outcomes:
We believe this will lead to a country-wide movement of mass entrepreneurship with 50 million jobs created by 2030 where 25% of the businesses will be owned by women. It will create an alignment between the education provided and the needs of the labour market. GAME with its vision has the capability to play the role of a backbone organization to help bring about this change in the country.