Governance

India’s Entrepreneurship Movement – Need for Social Entrepreneurship

With a massive population of over 1.2 billion people, out of which 356 million are from ages 10-24, India’s demographics is a cause for envy to many nations with an aging population. But to realise this massive potential demographic dividend, India needs to invest heavily in its human capital. In such a scenario, the emphasis being given to entrepreneurship by the government is highly desirable.

The idea behind promoting entrepreneurship is to become a nation of job givers and not job seekers, as propounded by the Prime Minister on many occasions. There are many schemes and initiatives which have been launched by the government to meet this vision.

The Make in India initiative was started is to give a boost to India’s manufacturing sector  cut down on red tapism, Stand up India, which has been formally launched recently, is aimed to promote entrepreneurship among women and dalits and will involve loans ranging from Rs. 10 lakh to Rs. 1 crore for setting up any new enterprise. Digital India Initiative has been launched to transform India into a digitally empowered society and knowledge economy, Micro Units Development and Refinance Agency (or MUDRA Bank) has been established to help small businesses, especially to access finance for development of micro units to encourage entrepreneurship in India  and provide the funding to the non corporate small business sector, Start Up Action Plan was launched to help start ups and Innovations System and addresses regulatory and financial challenges.  According to the National Association of Software and Services Companies (NASSCOM), India ranks third globally in the number of technology start-ups in the world and is among the fastest growing start-up ecosystems. There has been tremendous growth in the technology start-ups sector towards creation of innovative start-ups.

However, there is one type of entrepreneurship, social entrepreneurship which needs to be given further impetus. Social entrepreneurs are individuals who use a business model to solve social problems. Social Entrepreneurship seeks skills of businessmen and businesswomen to enrich and help society. They offer innovative solutions to society’s most pressing social problems. Their importance in our country where massive inequalities persist cannot be overemphasised. Social Entrepreneurship can help solve a huge gap between the people at ‘top of the pyramid’ and those at the bottom. However, there are many challenges for a social entrepreneur in India.

To start with, access to finance is a challenge faced by many social entrepreneurs. A way of funding social entrepreneurs is impact investing, a catchword that has been doing rounds globally.  Impact investors hope to create positive social or environmental impact beyond financial returns through their investments in a particular project. India has an impact Investor Council (IIC) which is an industry body representing impact investors in India. However the perception of impact investors doing charity or philanthropy is incorrect. They expect returns from the project just like any venture capitalist or Private Equity funds do, though returns are not as much as mainstream investments and the timeline is longer.

The government should step up and define what constitutes impact investing and provide yardsticks to judge their social impact. Most impact investors raise their funds from bigger global funds but local investment is also picking up, though at a very modest pace. The government can do much to change this. The government has already launched India Inclusive Innovation Fund (IIIF) in 2014.  IIIF is a for-profit entity with a social investment focus, to invest and provide funding to social enterprises for maximising social impact with modest financial returns. The total fund was initially to be Rs 500 crore, has a maximum limit of Rs 5,000 crore. Additionally, The Small Industries Development Bank of India (SIDBI) has a subsidiary called SIDBI Venture Capital Ltd which manages funds including the Samridhi Fund, which is a social venture capital fund providing capital specifically to social enterprises India’s eight poorest states in specific target sectors in order to help scale enterprises which provide economic, social or environmental benefits to the poor. Yet access to capital remains a problem

Another challenge is the concentration of such investments in a particular sector.

As the IIC website states, 56% of all impact investments are made in the micro finance sector. This should be channelized into other sectors as well through government policies and initiatives.

Apart from the financial challenges, the government policy towards social entrepreneurs needs to be different from that of regular entrepreneurs especially in areas of taxation, subsidies and legal status. Understanding and defining social enterprise is the need of the hour. In the absence of a consistent understanding and definition, there cannot be any potential effective government support to them.

Many social enterprises face a lack of knowledge when it came to scaling up their businesses. Many do not have any access to a support network or any technical advice, which further hampers growth. There have been initiatives. For example National Association of Social Enterprises (NASE) is India’s first industry association for social enterprises whose primary objectives are to reach out to potential private capital and government stakeholders, setting standards for social enterprises, and educating entrepreneurs in running ventures that can be scaled quickly and can hence provide returns. However, many stakeholders do not have knowledge about it[1]. Access to markets is another area that government could help social entrepreneurs with. Quantifying the economic and social development that a social entrepreneurship can achieve can help persuade the government towards creation of a social entrepreneurship policy.

Thus even though the government is moving in the right direction in giving a boost to entrepreneurship, social entrepreneurship needs special attention and impetus to strive towards a more inclusive growth.

By: Rukmini Mukherjee

[1] British Council, “Social Enterprise An Overview Of The Policy Framework In India”, October 2015, available at https://www.britishcouncil.in/sites/default/files/social_enterprise_policy_landscape_in_india_0.pdf

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