Digital Enterprise

Incentivizing Digital Entrepreneurs in India: Policies and Practices

The IT/ITES sector in India has been driven mainly by large vendors in urban areas and most revenue is generated from, in and around, the metropolitan areas of Bengaluru, Chennai, Delhi NCR, Hyderabad, Kolkata, Mumbai and Pune. In recent years both State and Central governments are promoting IT outsourcing for start-ups and other social enterprises by providing seed funding and other incentives for starting IT/BPO/ITES companies away from these metros/cities, in Tier 2 and Tier 3 towns and villages.

Way back in 2009, the State Government of Karnataka, pioneered a rural BPO policy by funding entrepreneurs to set up enterprises in rural areas and provide employment to disadvantaged youth. This policy was said to be an exemplar given its focus on rural outreach and for its effort to bridge the digital divide. The initial strategy was to give subsidy of Rs. 4,000,000 (approx. US$ 60,000) to companies to set up 100-seater units which would employ rural unemployed youth.  However, out of the 31 companies that applied for this programme, only about 13 of the bigger players commenced operations while many smaller players who had received the initial funding could not sustain their operations. A revised rural BPO policy was drafted in 2014 with the aim of supporting smaller social enterprises and NGOs by lowering the criteria for entry.  It was envisaged that entrepreneurs would be permitted to apply to enter the market with a minimum number of 30 seats/employees and would receive a subsidy of Rs. 2,000,000 (approx. US$ 30,000) over a period of three years.  The plan was that this subsidy would be tagged to the number of employees hired measured in terms of Provident Fund[1] contributions made by the rural BPO.

Realities on the Ground

Together with a colleague from the LSE, Dr. Shirin Madon, we conducted a longitudinal study for a period of approximately six years at three such rural BPO centres that were set up with State funding (Madon and Ranjini, 2016). Entrepreneurs whom we met felt that it was an excellent opportunity and that there was immense potential to deliver on par with global standards, so long as some of their problems were addressed by the government. Similarly, employees too were very optimistic about their prospects and growth. As one visually-impaired employee trained in a rural BPO that focusses on differently-abled youth who later went to secure a permanent job in a nationalised bank said:

‘I am very happy to say that it was because of the training at Samarthanam (rural BPO) that I realised that I will be able to work and stand on my own.  Samarthanam not just gave me job training and taught me how to handle customers, but it gave me the confidence that I can do anything and achieve anything’.

A team leader from another rural BPO centre commented:

‘Since Simply Grameen had established its centre in Maddur, for the first time we girls have the possibility of getting employment locally which is culturally acceptable by the household.  I worked in Bangalore before joining here and it was a harsh existence working for an urban BPO both in terms of the high cost of living and because of the lack of a social support network for women’. 

Despite the close proximity of the centre to Bengaluru, attrition rates at another rural BPO had been held constant at 8% per annum.  When probing as to why this was so, the Centre Manager there remarked:

Employees valued the prospect of combining the opportunities they were obtaining from RuralShores with pre-existing household income sources from agriculture.  In particular, employees found that they were less reliant on local money lenders as it became easier to obtain personal loans from banks as a result of their formal employment with RuralShores’.

We analysed the implication of this policy initiative beyond revenue and profit generation or number of people employed. For the young men and women who work here at these BPOs it has had a huge impact on their careers and lives. Many lessons can be learnt from the Karnataka Government’s RBPO policy initiative, although it has been discontinued. Below is a summary of our analysis:

Benefits to Employers and Employees

Reduced operational costs The operational costs like real estate rentals, transportation, and facilities management are substantially lower compared to urban centres. This is an important factor for enterprises to move out of urban localities.
Language Most of the employees have multi-lingual and vernacular language capabilities that is an asset in penetrating regional and rural markets. For example for banks and telecom companies.
Reverse migration Most of the employees prefer to work closer home as it facilitates their involvement in household activities and agriculture
Training Employees value the training they receive in their respective domain as well as training in soft skills and communication.
Formal employment Employees perceive regular income in a firm increases their status in society
Career development Career growth, clear career path and goals is a motivating factor. Opportunity and encouragement to pursue higher and distance education.
Cost of living Since cost of living is comparatively less than urban areas, lesser salary is acceptable
Financial benefits Insurance and Provident Fund benefits. Access to loans from banks
Gains for Women Proximity of employment has enabled women to join workforce, particularly for those who could not migrate to cities. Split shift enables women to balance domestic chores and child care.
Other benefits Study leave, and opportunity to live with family and parents and work-life balance

 Challenges and demands by entrepreneurs

Criteria for entry Some say eligibility requirements for entering into Government schemes is high and cannot be met by small players and rural start-ups.
Developing talent pool and training Although the workforce is engaged and committed, training them on-the-job for specific tasks takes time and huge effort
Attrition Attrition is comparatively low, however, it is still a matter of concern
Electricity Use of generators due to long power cuts increases operational costs. There is a demand that the government should support ongoing expenses through monthly subsidies for electricity.
Connectivity Entrepreneurs demand reduction in tariff for telephone and internet.
Infrastructure Roads, transportation and other basic services indirectly affect the functioning of these centres.
Handholding Initial years is a challenge with limited projects and not so well-trained workforce. Entrepreneurs suggest that the government should consider sub-contracting its own e-governance and related projects to these centres.
Ease of doing business Since many companies failed despite receiving funding, evaluation by government agencies and paper work increased.
Other challenges Availability of skilled labour pool, their retention, sustainability and scalability remain a huge challenge

India BPO Promotion Scheme

While the Karnataka State policy explicitly incentivized setting up of enterprises in backward taluks (rural sub-districts) and for socio-economically and physically disadvantaged groups in order to redress regional imbalances, this central scheme has shifted the focus to more developed taluks and smaller cities. The Government of India’s Ministry of Electronics & Information Technology has recently floated an all-India BPO Promotion Scheme providing incentives for small to medium organisations in both towns and rural areas to commence operations. The scheme provides financial support up to Rs. 1lakh/seat in the form of Viability Gap Funding, with special incentive for units providing employment to women, persons with disability and for units providing employment beyond the target. With a total budget outlay of Rs 493 crores (approximately 70 million USD) the scheme has a target to provide a total of 48,300 seats. As on November 2018, about 45,480 seats have been allocated to different states (Meity.gov.in/IBPS, 2018). Following is the data on number of enterprises that have commenced operations in different States and seats distribution based on population % as per 2011 Census of India.

State Number of Enterprises Number of Seats
Andhra Pradesh 22 5660
Bihar 10 2,110
Chandigarh 1 100
Chattisgarh 2 200
Gujarat 1 500
Himachal Pradesh 3 250
Jammu and Kashmir 7 350
Jharkhand 4 850
Karnataka 5 700
Kerala 1 100
Madhya Pradesh 4 1000
Maharashtra 9 2430
Odisha 13 1601
Puducherry 1 100
Punjab 6 1700
Rajasthan 3 400
Tamil Nadu 23 3600
Telangana 2 400
Uttarakhand 3 300
Uttar Pradesh 9 2480
West Bengal 1 100
Data as on 22 September 2018. Compiled by Ranjini C.R. Source: https://ibps.stpi.in/unitlists.php

Conclusion

Our exploratory study was situated in a single region and now with this pan India scheme there are opportunities for researchers to examine broader themes and conduct comparative analysis.

To conclude, incentivizing BPOs presents an opportunity for peripheral regions to benefit from IT outsourcing activity. However, it is crucial to extend support beyond seed funding such as subsidies and handholding in the initial years. Well established players can also support new entrepreneurs though their CSR activities, mentoring and by sub-contracting work.

(This paper published in Information Systems Journal provides further details about our study.)

References

Madon and Ranjini (2018) Impact Sourcing in India: Trends and Implications, Information Systems Journal, pp 1-16.

Madon and Ranjini (2016) The Rural BPO Sector in India: Encouraging Inclusive Growth Through Entrepreneurship in Nicholson B, Babin R, Lacity M., ed. Socially Responsible Outsourcing. Global Sourcing with Social Impact. Palgrave Macmillan.

Meity.gov.in/IBPS, 2018

[1] This is a term used to mean pension fund