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Friday, December 8, 2017

The Best Thing India Can Do For Female Entrepreneurs Is Leave Them Alone

Government does not need to do more to promote female entrepreneurship.

Recently, the government of India organized a so-called Global Entrepreneurship Summit (GES) in Hyderabad. For a couple of days, the media made a big hype of it. It was the main story on the front page of every newspaper and on every news channel simply because Ivanka Trump was in attendance.

But like everything else that involves politics and politicians, it was all show and no substance. Narendra Modi and Ivanka smiled for photographs, there was a robot that can greet people and make small talk (somewhat redundant since Modi was already there), and a whole lot of speeches were given.

However, let us look at the stated goals of the summit, and what it did, if anything at all, to achieve those goals.

The service sector creates relatively few high skill jobs. It cannot create the scores of jobs required for India’s men and women. 

Empowering Female Entrepreneurs

The first aim was to encourage women to start their own business, which is a worthy goal. Currently, only about 14% of the businesses in India are run by women. Of these, 83% are 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 learned. 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.

Where do they get those skills and capital? A 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 helps them accumulate some of the capital necessary for starting out on their own. This is where the crux of the problem lies.

India has so few female entrepreneurs simply because it has a very low proportion of women in the labor market. The female labor force participation rate is only 27%. 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 cultural stigma to women working outside their homes, but that can’t explain the entire shortfall in female labor force participation. If stigma were the explanation, developing countries similar to India, such as Bangladesh and China, would also see this problem. But in Bangladesh, 43% of the women find work, as do 63% in China.

What is it that Bangladesh and China have, but India does not? The answer is large, labor 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 skilled jobs. It cannot create the scores of jobs required for India’s men and women. I have on numerous occasions described how India’s complex labor laws prevent a large industrial base from developing. Having too many labor laws makes it unprofitable to hire workers. As a result, what little manufacturing takes place in this country relies heavily on machinery, and not labor.

With regards to women specifically, there are numerous regulations that hurt their chances at employment. There are several labor 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, it 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 summits.

Key Sectors

The government wanted to promote a few key sectors in this summit. Let us forget for a moment the fatal conceit of this central planning mindset, where government decides which sectors are important. For now let us look at just two of these sectors and whether or not the summit will really help them.

The government intervenes too much in the market preventing certain sectors from flourishing and women from succeeding.

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 health care market, summits like this are meaningless.

Media and entertainment is cited as another important sector. Of course, the first problem is the rampant censorship done by 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 (~$0.2) per month as subscription fees. If government prevents producers from making a return on their investment, they have no reason to produce good movies and television.

Government does not need to do more to promote female entrepreneurship or better healthcare or media and entertainment. On the contrary government intervenes too much in the market, preventing these sectors from flourishing and women from succeeding. Instead of wasting time with these silly summits, government officials would be wise to get rid of unnecessary and burdensome regulations.

  • Jairaj Devadiga is an economist. His work mainly deals with public policy and economic history. Apart from FEE, his writings have been published by the Centre for Policy Studies, the Institute of Economic Affairs and Pragati among others. He is on twitter @JairajDevadiga. Readers can also email him at [email protected].