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Now is a good time to start a small business

Small things can turn big, and sometimes numbers give us an idea of what we can do, writes Narayanan Madhavan.

india Updated: Jan 04, 2007 20:37 IST

There was a time when small numbers appeared big.

For instance, in 1991, the Indian government had to genuflect abjectly to borrow a mere $250 million (Rs 1,125 crore) from the International Monetary Fund (IMF). Today, that is the kind of money some of our bigger tycoons spend routinely to make overseas acquisitions.

Where were these people in 1991? They were in business, of course, but on a much smaller scale.

Rajesh Hukku was probably still writing code before I-flex, his baby, began growing bigger and bigger, and Oracle came to buy it for nearly $1 billion a year-and-a-half ago. In 1993, NR Narayana Murthy's Infosys had to go through hiccups and troubles in its initial public offering (IPO).

The point I am trying to make is that small things can turn big, and sometimes numbers give us an idea of what we can do.

Data released this week show that Indian mutual funds had more than Rs 1,85,000 crore parked in their liquid funds at the end of November, and this figure slipped in December because interest rates on bank deposits are up.

What this means is that the Indian banking system is still awash with cash, despite talk of a tightening liquidity position and higher lending rates. Savers have been stashing funds in liquid mutual funds because equity markets had become risky, and bank deposits offered low interest that was taxable as income.

Now, as the rates harden a little, the tap opens and liquidity does come into the banking system again. Also, the government has about Rs 50,000 crore of funds that actually belong in the banking system. This happened when banks had an excess of funds and the government came in to "ring fence" some of that as if to help some other day.

What is the problem, then, in getting loans? Inflation is a worry, fuel prices remain high and the government does have to bother about too much money sloshing about in the market, fanning demand that can push prices higher and stoke inflation.

The policy of the Reserve Bank of India, if you watch carefully enough, is to manage the loans that are given out by banks, not put a lid on them. After a big party in loans for cars, homes and consumer purchases, retail loans as a segment are under careful scrutiny.

So are loans for real estate projects and even the much-hyped special economic zones (SEZs), which can cause speculative binges or careless lending. What policy-makers are worried about, therefore, is reckless lending that is not balanced well between businesses, projects and infrastructure.

What does this mean for people who want to get into business? I mean real entrepreneurs with real ideas, real energies and real action who can come up with firms that add fresh blood to the economy by boosting its efficiency, bringing prices down or introducing new products or services.

I think the time is just right for such people.

Both private equity lenders and bankers are looking for real deals. Banks like ICICI and Citibank are actively wooing small and medium businesses to serve. Angel investors and venture capitalists do want to hear from entrepreneurs. When an economy of India's size is said to be growing at eight to nine per cent, it is not just big business that booms – or ought to. The strength of any large economy lies in its small and medium businesses, and entrepreneurs who think up new things – as gentlemen like Hukku and Murthy did in the 1980s, when software was hardly on our lips.

Small businesses can be anything. From supplying food to call centres to managing domestic servants for busy executives, from founding a nanotechnology startup to turning a franchisee for a beauty salon or accountancy training school, opportunities are emerging that entrepreneurs can exploit.

Now may be a good time to dust up that idea, and now may be a good time to visit bankers to ask how they can help. At least, we can find out if they are as good as their ads that promise the moon for small businesses.

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First Published: Jan 04, 2007 20:37 IST