What is your view on the Indian financial sector vis-a-vis the SME sector?
India is going through a significant financial sector challenge as we are aware of. I think we need a transformation of the Indian financial sector. We truly need to re-imagine finance in this country and the time is now.
Some of the data which I have is that in most countries, SMEs are a third of the jobs in the formal sector. In India it is 10%. May be there is a lot of informal sector which does not get reported but just 10% jobs come from SMEs compared to developing countries average of 33%.
One of the things where India has faced challenges historically in small and medium businesses is that we have always had scarcity of risk capital. Normally what used to happen was nationalisation like in case of banks. State-owned banks were much more comfortable giving money without necessarily asking for as much capital for the risks. In the last 10 to 15 years, a lot of small and medium businesses because of inadequate capital have actually failed and also the sector has formalised.
As more and more companies go through failure, the banking system tightened and now it wants a much greater level of risk capital which many entrepreneurs do not have. One of the things India really needs to do is to build venture capital industry and early venture capital — it could be angel or even for startup — a disproportionate portion of which even now comes from offshore investors.
We must from a policy point of view, find ways of giving big incentives for domestic savings moving into venture capital, that is one side of it.
The second is most enterprises suffer while going from informal to formal and in many ways in recent years, both GST and demonetisation has pushed the informal sector more into the formal sector which has created its own friction but long term it has opportunities as well. We need to find that when this transition is happening we need to be able to have a policy framework which supports with risk capital and an ecosystem which supports this because banks and financial institutions now have become much tighter on wanting proper capital in place.
[“source=economictimes”]
