The tragedy for small business in India

Warning: A useless rant by a frustrated bugger who can’t do anything to improve the situation

Just over a month ago, Walmart in the US came under fire for having spent $25 bn to get into India. Indian government with unusual alacrity spared only for big businesses who have the balls to enter the Indian market launched a probe into it. Bharti Walmart in India suspended links with over a dozen consultants who had helped them procure licenses for launching their operations. Why was I not surprised. Well try getting into any kind of business in India which has to do anything with the real world  and you’ll get the answer

Liberalization in 1991 is heralded as an epoch making event which finished off the licensing/ inspector Raj in the country. Well not quite. It is very much alive and kicking. As an example to set up a retail operation in India, according to the data that I have one needs minimum 32 licenses. I’ll just give you a small summary to make the point clear

Labour: Profession license, Provident fund, 7 days exemption, Shift working, 365 day permission

Municipal commissioner: Trade license, Health trade license, Freezers permit, Food handlers certificate, Meat food products order, Permission for selling non-veg, Frozen non-veg, Freezers permit, Construction

Wait there’s more!

Shop and Establishment clearance, Food court license, Fire NOC, Music license, Police clearance, Sales Tax, APMC (Agriculture produce marketing committee), Cold storage, Weights and Measures, Pollution

These are authorities who issue 2-3 licenses at the least

Whew you get the jist.

And the issuing authorities are hideously corrupt. They sit in their chairs like erstwhile maharajas and between sips of tea and bites of samosas laced with gossip about colleagues and their wives, sign one or two files in a single day amidst the stack of files (mostly unread) in their offices which will make a scrap dealer (kabadiwala) salivate.

And despite all these controls, India has one of the worst rates of adulteration and food poisoning due to consumption of expired food. We have one of the worst fire safety records. The least said about weights and measures the better it is. How is that possible? Simply because inspection and sincerity to duty is non-existent. To get your file passed, just go abegging to the mighty officialdom with ‘Mahatma Gandhi’ and gifts tucked up and you have your license ready. Even if you have all the documents stipulated in the government website, there are ten different ways to find out a glitch. Be it the neighbourhood shopkeeper or the mighty Walmart, nobody can dare take on the officialdom

In most cases, small entrepreneurs just bite the bullet and plunge in not knowing when a Dhoblesque inspector might come in with his misplaced sense of duty and shut his shop due to lack of licenses. When you are operating in such uncertainty, who cares about regulatory tax filing. And the vast wealth of the country just keeps going into the Black hole.

Now I hear new regulators and authorities are coming up. The Food Safety and Standards Authority of India (FSSAI) has recently been given a lot of teeth. So there you have another set of leeches to feed.

This is before the operations start. Once your business is up and running, all the small authorities make a point to give you the opportunity to extend your hospitality to them. They come either as small facilitation money takers or as officials who are feted and treated.

The Indian entrepreneur has always been “creative” and finds his way out of this melee of nonsense with his traditional “jugaad”. But who suffers in the end. The End customer which is the babu himself sometimes. The practice is so prevalent that some financially literate firms add a line called “Environment Management cost” to their Profit and Loss Account. This Environment Management cost is fast becoming a major cost component as is expected.

Who is to blame? The policy creators of course who mostly are the overeducated but underliterate IAS officials who in their quest to create an ideal and comprehensive system end up undermining the whole purpose of value creation.  If only it was mandatory for those deciding the policies to have come from a background of operations in those areas, the situation wouldn’t have been so desperate that all new entrepreneurs want simply to open up a business in sectors which have minimal government control ignoring the fabulous returns on traditional sectors like agriculture now being witnessed.