Institutions and Entrepreneurial Growth: The Indian Experience

Abstract

Entrepreneurship is considered as the backbone of economic progress of a country. It has been established that the level of economic growth of an economy to a considerable extent, depends on the level of entrepreneurial activities. In this era of liberalisation, privatisation and globalisation entrepreneurs are making use of the opportunities emerging. The importance of institutions in structuring entrepreneurship and enterprises cannot be undermined as these arrangements are highly inimical to economic activity in an economy. Nonetheless it adapts to the politically determined policy framework. A key obstacle to economic growth in low-income environments is an inadequate level of entrepreneurship in non-traditional activities. It has been documented in the literature that countries grow by increasing the range of products that they produce, and not by concentrating on what they already do. Productive diversification requires entrepreneurs who are willing to invest in activities that are new to the local economy. In particular, institution has to adopt reforms that produce a boost in economic activity in the modern sector that were languishing and also identify the circumstances under which different types of policy reforms are likely to foster structural change and economic growth. However, there may be obstacles to growth in low-income environments such as an inadequate level of entrepreneurship in non-traditional activities and there could be heterogeneous experience with policy reform. Such entrepreneurship can be blocked both because the policy environment is poor in the conventional sense; may be due to excessive taxation or inadequate credit regime and so on-or may be because markets do not generate adequate incentives to reward entrepreneurship of the needed type. Radical reforms may be imminent even for institutional arrangements. Some existing features of the tax systems may be biased against entrepreneurs and firms. This paper discusses the implications of tax policy and role of credit institutions for the growth of modern entrepreneurship and enterprises.