Shubh Labh: Don't mix up uncertainty and risk-taking

The country is gearing up to celebrate Diwali, which, along with the return of Lord Ram to Ayodhya, is celebrated as the festival of Goddess Mahalakshmi. Business and trading communities spruce up their establishments and refurbish signs of 'Shubh Labh' (auspicious profit), often prominently displayed. The importance of profit and the profit motive is imbued in our culture and the worship of Mahalakshmi is associated with reverence for profit-making.

- T.C.A. ANANT

Over two decades ago, I had written a newspaper column emphasizing the importance of the relationship between business, profit and risk-taking. The work of Frank Knight, who distinguished between risk and uncertainty, is of timeless relevance. While risk can be insured against, uncertainty cannot. An entrepreneur's principal role is to step into the unknown—and profit is society's reward for this endeavour. However, regulation and regulators often confuse the two; they aim to limit uncertainty, but end up stifling enterprise.

The world today faces new sources of uncertainty: climate, technology and politics. Our challenge is for our policy environment to recognize these changes and adapt to promote entrepreneurship. Since I wrote the article, many improvements have been made in the business environment. A new Insolvency and Bankruptcy Code acknowledges the natural role of failure in a healthy business ecosystem, establishing mechanisms for restructuring and honourable exits; a new policy framework supports venture capital and startups; the normalization of forward markets and derivatives—once considered taboo—recognizes the role of speculative behaviour, the development of digital platforms and fintech has made commerce easier and reduced transaction costs.