Who are 'Shadow Entrepreneurs' and how do they operate their businesses?
There has been a global rise of shadow entrepreneurship in sectors such as education (certificates), finance (for easy loans), the betting economy (online games) and healthcare (e-pharmacies). As per a report by Imperial College Business School, India has the second-highest rate of shadow entrepreneurs, after Indonesia.
About: Shadow entrepreneurs are those who do not register their businesses but manage to sell legitimate goods and services.
Evade Taxes: These entrepreneurs evade taxes and operate outside the reach of government authorities.
Types of Businesses: These businesses include unlicensed taxicab services, roadside food stalls and small landscaping operations.
1- It is surprising to note that most of the informal sector jobs come under shadow entrepreneurship.
2- It also boosts the economic development of a nation.
3- Shadow businesses helps in reducing the poverty.
4- It provides non-agriculture jobs, thereby removing pressure on agriculture.
5- Shadow businesses provides with a variety of options to the consumers.
The rise in Shadow Entrepreneurs:
1- High tax rates and less strict enforcement has led to tax evasion and has driven entrepreneurial activity towards the informal sector.
2- Amid the ongoing COVID-19 pandemic and subsequent lockdown, shadow entrepreneurs have offered technology-mediated services to the consumers which the traditional service providers were constrained to offer.
3- Shadow businesses got promoted with the help of technology-enabled new markets and tech-savvy consumers.
1- Most of the time, small firms are acquired by large firms, thereby reducing competitiveness.
2- Several app-based loan providers charge high interest on loans and use questionable methods for the recovery of loans.
3- It leads to a loss in the revenue as these businesses are not registered with the government and operate in the shadow economy.
4- They operate outside the reach of government officials.
What can be done?
A proper economic and political framework is the need of the hour. This will encourage the individuals to register their businesses to take advantage of legislations to protect their company.
Also, shadow businesses that comply to join the dominant mode of service delivery with non-shadow businesses should be rewarded.