Despite all the hype about India’s booming startup culture, the World Economic Forum (WEF) says it is one of the worst places in the world for small business owners.
After assessing factors such as ease of starting and running a business, attitudes toward entrepreneurial failure, tax policies, number of new business registrations and patent applications, the WEF has ranked India lowest among 38 lower middle income economies.
According to the Geneva-based non-profit organisation, lower middle income economies are countries with a gross domestic product (GDP) per capita between $1,320 and $5,999. India is ranked lower than countries such as Mongolia, Tunisia and Pakistan.
“India scores well in terms of access to finance for business development and real economy investment, yet new business creation continues to be held back by the large administrative burden of starting and running companies, corruption, and underdeveloped infrastructure,” the WEF said in its Inclusive Growth and Development Report 2015 (pdf).
Ease of doing business
In another report, World Bank’s Ease of Doing Business 2015, India was ranked 142 among 189 nations—behind countries such as Iran, Nepal, Uzbekistan, Kenya and Ethiopia.
An analysis by the Mint newspaper earlier this month showed that growth in revenue for India’s small businesses—listed on a stock exchange—is steadily declining.
And, even though India has seen a massive boom in the number of technology startups in the last few years, most of these new businesses—which focus on the Indian market and have their operations in the country—opt to register themselves overseas.
For instance, Flipkart, India’s largest e-commerce company, re-domiciled its parent company to Singapore in 2011. As per estimates, about 60-70% of Indian technology startups are currently registered outside the country.
“It is very difficult to run a small technology business in the country because of the current policies.” Ravi Gururaj, chairman of technology industry body Nasscom’s product council, told Quartz.
“Several entrepreneurs come from middle class families. They are often not aware of the kind of paperwork that’s required for setting up a business in the country, and how to get around policies and regulations. So at times the business gets messy just as it starts, which could become a challenge when an investor looks at the company’s books,” Gururaj said.