Writing in Mint, Niranjan Rajadhyaksha tells the story of India’s entrepreneurhsip. Policymakers should take measures to move closer to the global productivity frontier, and help informal entreprises to "move closer to the domestic productivity frontier”. Excerpts:
"There are two complementary ways in which an economy such as India can grow through higher productivity. First, it has to move towards the global productivity frontier in the same way that many Asian countries broke away from mass poverty. Second, low productivity firms that exist in the informal economy need to move closer to the domestic productivity frontier. Policymakers will have to take both these into account.
A sudden push towards formalization could create unemployment, since a large chunk of Indian enterprises will not survive the costs of registration or paying taxes. There is no point in glorifying the millions of tiny enterprises that restrict productivity growth in the Indian economy. The ideal compromise is the gradual formalization of tiny enterprises with a helping hand from the government. However, as Jayachandran points out in her paper: “Overall, the evidence from studies that encouraged firms to formalise does not provide much support for the optimistic view that formalisation unleashes growth for micro enterprises. Most randomised evaluations do not find impacts of formalisation on firm profits."
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