e&y entrepreneurship barometer, part 2: india - country digest
TRANSCRIPT
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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
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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.
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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
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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
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Yes
67%
No
31%
Cant say
2%
Mature markets: 59%
Rapid-growth markets: 80%
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?
Source: The Nice Cte dAzur 2011 Entrepreneurship Barometer
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
n.a.: data not availablep.p.: percentage points
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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
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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.
n.a.: data not availablep.p.: percentage points
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.
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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%
Rapid-growth markets: 51%
6 Entrepreneurs speak out The Nice Cte dAzur 2011 Entrepreneurship Barometer | India digest
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?
Source: The Nice Cte dAzur 2011 Entrepreneurship Barometer
by Ernst & Young.
Yes
49%
No
49%
Cant say
2%
Mature markets: 42%
Rapid-growth markets: 56%
49%notice a lack of tailored support programs foryoung entrepreneurs
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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
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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.
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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
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Assurance | Tax | Transactions | Advisory
Contact
Farokh Balsara
India Strategic Growth Markets Leader
Tel: +91 22 6192 0280
Email: [email protected]
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