Wednesday, February 6, 2013

Indebted and inequitable?

The lack of capital is a serious blot on India’s entrepreneurial growth story. Small and medium enterprises have a very faint idea about organised sources of finance, leave banks. It’s time for the establishment to look into this in an extremely urgent manner

Entrepreneurship. It’s a word that inspires much excitement, and symbolizes the aggression, dynamism and can-do attitude that most of us would like to be associated with. But then again, it’s an ocean that few dare to plug in.

To an economy like India, which has, unlike China, succeeded despite its political class, rather than because of it, entrepreneurship is a valuable enabler for its bottom up economic growth story. Right from the travel agency with a single computer office to software giants like Infosys and Wipro, the potential of entrepreneurship in our country is far more evident today than it was two decades ago.

Backed with a wealth of precedents, and with a resilient economy, one would like to believe that it’s an iterative loop with businesses being set up and scaling at a massive pace. We need both these things to happen at a ridiculously fast pace to solve India’s problems of wealth creation and poverty alleviation. There’s no dearth of talent, ideas or the will. But as B&E analyses after a considered study of various trends, the ability to raise capital, as well as the nature of the capital being raised, are two critical hurdles that continue to stymie the pace of Indian business.

Firstly, it’s the nature of capital. As Bloomberg’s League Tables for 2009 pointed out earlier this year, India’s capital raising pattern for the year was an amalgamation of change and consistency. QIPs emerged as a major route for raising capital, as Rs.341 billion was raised through that route. But overwhelmingly leading the pack, as usual were domestic bonds (debt), through which a massive Rs.1.45 trillion was raised. QIPs were followed by domestic IPOs (Rs.193 billion), overseas equity (Rs.155.13 billion) and overseas debt (Rs.83.55 billion) in the pecking order.

This scenario brings to light a number of issues, particularly for potential start ups and SMEs (which account for 90% of Indian industrial units, employ 33 million people and contribute 35% to India’s exports) that are looking to scale up. An overwhelming reliance on domestic debt fuelled growth has its disadvantages; especially considering India’s relatively high interest rates. But even when lower interest rates are available outside, most Indian companies haven’t yet considered taking that route as the data shows.


Source : IIPM Editorial, 2012.
An Initiative of IIPM, Malay Chaudhuri
and Arindam Chaudhuri (Renowned Management Guru and Economist).

For More IIPM Info, Visit below mentioned IIPM articles.
Posted by at
Labels: , , , , , , , , , , , , , ,