The document summarizes 5 "isms" that hinder the growth of small businesses in India: feudalism, socialism, communism, colonial bureaucratism, and crony capitalism. Feudalism ingrained a system of privilege that does not support small businesses. Socialism and communism discourage private ownership that small businesses rely on. Colonial bureaucratism developed a system meant to control India as a colony, not support citizens or small businesses. Crony capitalism favors large existing businesses over new small businesses. These 5 isms have created a neglect and bias against small businesses in India's policies and mindset.

1. The 5 ‘Isms’ Hindering The Growth
Of Small Businesses In India
P Vijay Kumar,P Vijay Kumar,
Writes for SME Resource Center ofWrites for SME Resource Center of
Small and Medium Entity Promotion in HyderabadSmall and Medium Entity Promotion in Hyderabad
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2. Small businesses play a significant role in economies of the United states, Germany and
other countries of western Europe. Small businesses are the backbone of these
economies and contribute 46% in USA and 50% in Germany. Whereas small businesses
are a neglected segment in India. This neglect is not because of lack of opportunity but
due to the the influences that shape India specifically: feudalism, leftism (communism,
socialism, etc.), crony capitalism, and colonial bureacratism, and small businesses are
not encouraged in India. We’ll discuss briefly these five Isms.
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3. Feudalism
Historically speaking, India is a land of the privileged. ‘Might is the right’ has always
been in vogue when it comes to seizing political power. The feudal chieftains were
called zamindars. This class was a parasitic class: be it pre-Britist and during the British
rule. They led a pompous life-style. (Source:NCERT History text book Class 12). They
typically did not care for the good of the people. They served only their feudal masters
– the privileged.
This is diametrically opposite the system in the United States: rail trains have a single
class and is accessible to all equally unlike in India where there is a reservation system
dividing into first, sleeper class, etc. This is a reminiscent of the colonial system in the
country. Readers may be shocked to learn that the Railways had a ‘Third class’
compartment system until the late 1970s. So deep is feudalism ingrained in India.
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4. Socialism
Socialism has been deeply embedded in the Indian ethos thanks to the political
masters at the time of Independence. Maybe these people did not have the foresight
to visualize the negative impact of socialism.
Socialism is an avatar of leftism, which has created not a single instance of success
anywhere the world. The recent monetary crisis in the EU, including the debt crisis in
Greece are routed in the vices of socialism. Simply put, where socialism rules, riches
will run away, famine and crisis will set in. In this context, this quote by Winston
Churchill deserves mention: The inherent blessing of socialism is the equal sharing of
misery.
Fabian economists advocate gradual change in the economy instead of dynamic
conversion. Fabian economic policies focus on people as producers, and consumers’
interest is ignored. Officials with Fabian socialist leaning opine that such investments
affect a large number of local retails. However, their concern is baseless.
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5. Socialism - Continued
According to Retailers Association of India, the Indian retail market is likely to reach
US$ 70 b, and is likely to grow at a CAGR more than 25% over the following 10 years
(June 2014). Thus, the Indian retail industry is vibrant enough to stand up competition
from e-commerce: domestic as well as foreign. This shows that Fabian economic
thinkers’ apprehension is misplaced.
The businesses mentioned cited as examples are large. As for SMBs, they cannot
sustain shocks of any sort. They may lead a stunted growth or may be forced to close
down.
Nehruvian Fabian socialism’s influence made the system less responsive to changes as
per the needs of the economy. For example, during the Second and Third Five Year
Plans (FYPs), based on the Mahalanobis strategy, PSU building (in heavy and basic
industries) was emphasized without taking into account the need of a vibrant
agriculture sector. This resulted in imbalances in the economy, created food grain
shortages and high food-inflation.
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6. Socialism - Continued
The subsequent FYPs led to a system of controls (quotas and licensing, etc.), which
resulted in concentration of official power with discretion. Further, the frenzy in favour
of large scale PSUs made the political masters disfavour small enterprise. As this
happened in the initial years after Independence, it has had a long-lasting impact.
SMBs are not just neglected but are ignored as well. Whatever small businesses exist
are not because of government, it’s in spite of government.
In the absence of decentralization that could enforce accountability, officials became
temperamentally and morally lazy. A good feel on planning was propagated on the
pretext that it’ll lead to good performance of the economy – that whatever decision
has been made is good. In this agenda, small businesses are assumed to be of low-end
and the slowness (because of policy issues) in the system penalizes them. All this
completely discourages and breaks the confidence of these businesses.
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7. Communism
Communism involves total control of government on all aspects. Whether it’s your
holding a piece of land, a house to dwell in you cannot possess their ownership. The
polity in communist rule does not permit it. No ownership of capital (to produce goods
and services and sell), no choice to select the food/clothes you like. Thus, even if you
do not like the bun made in government factory, you have to consume because you
don’t have any other option – no bread or porridge or anything that might strike you.
Communism in India finds its place among the blue collared. This makes it difficult for
the management of businesses to bring changes for the good of their business.
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8. Communism - Continued
It’s a fact that small and medium businesses in India are owned by private individuals.
As communism disallows private property, there will not be a single SMB. The former
USSR did not have any such businesses. Figuratively speaking, official policies create
such hurdles to SMBs’ thriving.
Communist parties in India have done well. A lot of Indian intelligentsia got inspired by
the ideal of communism. Many of them joined various government departments and
banks – thereby discouraging (opportunities for) SMBs due to their blind admiration of
communism.
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9. Colonial bureaucratism
The Indian bureaucracy was developed by the British to run India as a colony and not
to serve the Indian people. At the time of Independence, India inherited a bureaucracy
already used to work for the British rulers or the Princely States. It did not help when
India chose socialism and centralization by taking a more central approach – the
bureaucracy distanced itself from the ordinary people and people as citizens. This
created a negative bias against small businesses.
Also, because of the socialistic perception to the bureaucracy, industry meant the big
private industries or the PSUs, and SMB are ill-businesses and should not be
encouraged.
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10. Colonial bureaucratism - Continued
In an economy of India’s size, small and medium businesses play an important role by
creating employment and income opportunities. There are a large number of these
industries. And, dealing with one big business is easier than dealing with thousands of
small businesses. It also makes easy for officials to get bribes in the name of clearing
laws and regulation.
For example, government cannot have 10 lakh small businesses operating
independently even with a government official. Heading each small business is
impossible to administer centrally. So, small businesses have no place in colonial
bureaucracy.
Understanding this difficulty, only MNC manufacturers first find a local distributor who
takes care of the local business decision making. MNCs do not do distribution directly.
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11. Crony capitalism
Crony capitalism involves offering favourable treatment to applicants who have close
family relations in government. Also, power is favours crony capitalism. In other words,
if you are an industrialist owing large industries, you are likely to get favours while
considering your application.
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12. Crony capitalism hinders SMBs’ thriving
Crony capitalism works by exception. Since the person is a crony of the powerful, no
hindrances are there whether a law exists or not. Crony capitalism works if the
competitors of the crony capitalists find the system/rules, permissions are complex.
But this system does not work for the SMBs as they need clear cut policies and an
honest, efficient system to work.
These ism in the Indian mindset affect decision making. The evil effects are more
intense when it comes to decisions related to SMBs. Effective policies coupled with a
positive change in attitude is essential.
SMBs have been affected by lack of support, but more than that is a mindset of
neglect, bias, and disinterest by politicians, bureaucrats and intelligentsia have
prevented both growth of the economy and have led to lack of jobs to Indian
unemployed.
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13. About SMEPH
Smeph.net is a website about Small and Medium Entity Promotion in Hyderabad that
contains exclusive articles, webinars, white papers & latest industrial updates to
support and guide professional SMEs run their businesses successfully. The
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