Mumbai, Maharashtra, India
For the past couple of days now, the media has been making a big hype of the Global Entrepreneurship Summit (GES). On the front page of every newspaper, and on every news channel, Ivanka Trump is the main story. However, like everything else that involves politics and politicians, it is all show and no substance. Modi and Ivanka smiled for photographs, there was a robot that can greet people and make small talk, and a whole lot of speeches were given.
But let us look at the stated goals of the summit, and what it does to achieve those goals.
Empowering Female Entrepreneurs
The first aim is to encourage women to start their own business. Currently, only about 14 per cent of the businesses in India is run by women, of which 83 per cent is just one woman businesses, with no other staff.
What did the summit do to enable female entrepreneurship? It consisted of numerous master classes, where industry veterans told their own stories of how they started out, the mistakes they made along the way, and useful things they learnt. While it is nice to know tips and tricks, one cannot really use them unless they have both the skills and the capital to start their own business.
India has so few female entrepreneurs simply because it has a very low proportion of women in the labour market.
Where do they get those skills and capital? Majority of the entrepreneurs initially work for someone else, learning essential skills on the job, which they later apply in their own ventures. Earnings from a job also help them accumulate some of the capital necessary for starting out on their own. This is where the crux of our problem lies.
India has so few female entrepreneurs simply because it has a very low proportion of women in the labour market. The female labour force participation rate is only 27 per cent. If women cannot get the experience and skills that come only from having a job, they will not be able to start their own businesses.
The question, then, is why do women not get jobs? Sure, there is some stigma to women working outside their homes, but that can’t explain the entire shortfall in female labour force participation. If stigma were the explanation, developing countries similar to India, such as Bangladesh and China, for instance, would also see this problem. But in Bangladesh, 43 per cent of the women find work, as do 63 per cent in China.
India skipped the manufacturing part, and jumped from agriculture, directly to the service sector.
What is it that Bangladesh and China have, but India does not? The answer is large, labour intensive manufacturing sectors, which all countries at a similar level of development have. India famously skipped the manufacturing part, and jumped from agriculture, directly to the service sector.
The service sector creates relatively few high skill jobs. It cannot create the crores of jobs required for India’s men and women. I have on numerous occasions described how India’s complex labour laws prevent a large industrial base from developing. Having too many labour laws makes it unprofitable to hire workers. As a result, what little manufacturing takes place in this country relies heavily on machinery, and not labour.
With regards to women specifically, there are numerous regulations that hurt their chances at employment. There are several labour laws that were passed with the noble intention of helping women. The law mandates paid maternity leave, having a crèche facility if the firm employs more than 30 women, places restrictions on the hours women can work and the maximum workload they can take on, among other things.
All of this means that it is cheaper for employers to hire a man than a woman, for the same job, and save on the additional costs of maternity leave, babysitting and so on. The law effectively forces employers to discriminate against women, and hire men wherever possible.
If the government were really serious about encouraging female entrepreneurship, they would first get rid of all the unnecessary regulations that create hurdles to finding jobs. Until then, only women from rich families who could afford a good education for them will benefit from such events.
Given the government’s tendency to impose price controls on medicines and medical equipment, there is little incentive for entrepreneurs to enter the market.
Key Sectors
The government wanted to promote a few key sectors in this summit. While I’m no fan of this central planning mindset, where the government decides which sectors are important, that’s a story for another time. For now, let us look at just two of these sectors and whether or not the summit will really help them.
The first is health and life sciences. Given the government’s tendency to impose price controls on medicines and medical equipment, there is little incentive for entrepreneurs to enter the market. When government recently capped the price of stents, manufacturers pulled out their latest models from the market or refused to launch them at all. This ended up hurting patients, who now have fewer choices. Unless government stops meddling in the healthcare market, summits like this are meaningless.
Media and entertainment are cited as another important sector. Of course, the first problem is the rampant censorship done by the government. Another problem is again, price controls. In some states, like Tamil Nadu, movie ticket prices are capped by the government. When it comes to television, entertainment channels are not allowed to charge more than Rs 12 per month as subscription fees. If the government prevents producers from making a return on their investment, they have no reason to produce good movies and television.
The government would be wise to deliver on its promises and get rid of unnecessary and burdensome regulations.
The government does not need to do more to promote female entrepreneurship or better healthcare or media and entertainment. On the contrary, as we have seen so far, government intervenes too much in the market, preventing these sectors from flourishing and women from succeeding. Instead of wasting time with these summits, the government would be wise to deliver on its promises and get rid of unnecessary and burdensome regulations.
(Disclaimer: The author writes here in a personal capacity).