India is a huge market, and Indians can be excellent entrepreneurs. Why then do we not see start-ups of the kind that matches with Silicon Valley, New York, Tel Aviv, Berlin or Singapore?
The current regime in New Delhi is unswerving about its business-friendliness and has made it clear at more than one instance that it wants to promote entrepreneurship in the country. Moreover, the current focus on boosting the manufacturing sector needs innovative start-ups to create world-class goods, and in turn provide employment opportunities to the burgeoning young workforce of the country.
To this end, there have been several policy steps in the past year—some continuation of earlier initiatives and others new. One of the most important ones was the formation of the department of skill development and entrepreneurship last July, subsequently leading to the creation of a ministry by the same name.
While the ministry had a head start on skill development initiatives, action around entrepreneurship is picking up steam gradually. The National Policy on Skill Development and Entrepreneurship 2015 with a 10-point policy framework on entrepreneurship is one of the key initiatives undergoing wider consultations, until recently. Another was the recent launch of a development bank to fund unfunded entrepreneurs.
Earlier this week, capital markets regulator Securities and Exchange Board of India also decided to join the party: relaxing the rules for start-ups to raise funds on Indian stock markets. In spite of such efforts, why are India-based start-ups not enthused? Why do we still lack a decent start-up scene that boasts of a global first mover in any sector? Are we even able to hold back our entrepreneurs from relocating outside the country?
A recent report by iSPIRT, a software product industry think tank, estimated that three out of every four new technology-based start-ups in 2015 would be domiciled out of India. More than half of the start-ups that raised funds last year have moved out of India.
Given the need for entrepreneurship—as a means to development, job creation and social and economic value addition—we have miles to go. If we want to make the best of it for the country’s development, there is a need to cover the distance with a lot more speed and focus. It is well known that start-ups need a handful of ingredients to flourish: creativity, demand, capital, infrastructure and network. A creative mind is required to solve a problem and thereby meet the demands of customers in a way that is better than any of the existing ones. Capital is required to convert the idea into a commercially viable product, and overcome risks to make profits. Infrastructure plays a key role in delivering good value to the consumers. Networking helps in doing all of the above in a competitive manner.
So, how does India score on each of these factors?
Creativity exists in India in abundance. What else can explain our affinity towards jugaad or frugal innovation? But is that enough for entrepreneurs to come up with top-notch ideas that can create world-class companies? Unfortunately, empirical evidence indicates this is hardly the case. There is no clear answer to how we can create a culture of creativity, but there is enough research in social psychology that points to the positive role of the social context in which the individuals operate. That requires us to create a positive environment for the youth, especially the millennials, as their creativity is an essential first step towards producing the big ideas for India.
When it comes to demand for goods and services, India fares quite well. The 1.25 billion inhabitants present a considerable demand for a variety of goods and services that Indian entrepreneurs can potentially cater to. Unfortunately, however, one of the most common start-up ideas in India is to focus on a western business model and implement it here with a little tweaking here and a little adaptation there. While this might open small windows for entrepreneurship opportunities, the fact remains that India needs unique solutions. The demand for products at the bottom of the pyramid can make fortunes—for consumers as well as for entrepreneurs, but needs cutting-edge innovations and not mere imitations.
In India, rural entrepreneurship using grassroots innovations is an effective way to capture a large market. Start-up ideas using grassroots innovations are better positioned to utilize local talent into decentralized sustainable business models without creating an imbalance in the talent market between urban demand and rural supply. There are several effective ideas of scaling up grassroots innovators that my esteemed colleague professor Anil Gupta, has been mentoring, nurturing and promoting—all aimed at supporting entrepreneurship in an extremely localized manner.
Infrastructure—both hard and soft—remains a bottleneck for start-ups to grow in India. For technology-based start-ups, such as e-commerce websites, Internet penetration and faster connectivity remain a big challenge. Logistics and supply chain management is no better in India. Lack of good cold chains, warehousing infrastructure and poor transport conditions don’t help start-ups that need to physically move products from one place to another. Above all, for entrepreneurs to be able to capture meaningful value created out of their start-up ideas, we need a much stronger intellectual property right enforcement. India’s national IP environment ranked 29th out of 30 countries surveyed by Global Intellectual Property Centre. We surely have a long way to go.
The next critical element for entrepreneurship is capital. It is well known that entrepreneurs have difficulty in accessing finances for the early stage of their ventures. The proverbial “valley of death” between the big discovery and its successful growth requires intervention from angel investors and venture capitalists. There have been a few steps taken by the government agencies in the last year that are helpful to access capital in form of attracting private investment, and in near future also through stock exchanges.
However, what we require more in India is “smart” capital—that is not only a source of financing, but also comes with mentoring, advising, training, guidance and business acumen. One of the key activities at the Centre for Innovation Incubation and Entrepreneurship at IIM Ahmedabad has been to actively provide smart capital that helps convert several entrepreneurial dreams into realities on an ongoing basis. We need many more of such institutions in India to be able to achieve a meaningful entrepreneurial output.
Human capital is no less important as compared to finances. With a median age of 25 years and the world’s second-largest population, India has the potential to provide an unmatched supply of talent to help execute the creative ideas well. Yet, there is hardly any start-up founder you will come across that hasn’t faced a crunch of skilled manpower. The paradox is reconciled when we look at the government statistics closely: less than 5% the total workforce in India has undergone formal skill training as compared to 68% in UK, 75% in Germany, 52% in US, 80% in Japan and a whopping 96% in South Korea. Abundant but dysfunctional raw material doesn’t help any cause.
One easy way to better utilize the demographic dividend is to promote entrepreneurship that utilizes right talent for skills that can be developed on-the-job. It will be helpful if education institutions— especially the IITs and IIMs—also focus on building an entrepreneurial mindset. At IIM Ahmedabad, we have been pursuing this passionately. Our aim is to educate leaders of enterprises. Our restructured curriculum for our flagship post-graduate programme has a prominent place for courses providing entrepreneurial inputs to our students. We are hoping this becomes a trend across educational institutions in the country.
The last element necessary for a strong entrepreneurship-based society is a strong entrepreneurial ecosystem. An incubator that can nurture small and big ideas. A platform that can connect entrepreneurs with capital providers, ideas with markets and innovators with funders. A thriving entrepreneurial community in every city across the country. Several local government bodies across the world are proactively working towards making their cities a vibrant hub for start-ups. Indian civic authorities will do good to take this up at a local level. An enthusiastic participation by education institutes is likely to provide a meaningful support to such an initiative.
On all the fronts, we need to do a lot more for entrepreneurship in the country. This not only includes government and academia but also corporations and private investors. There are several complementarities in activities of each of the stakeholders that can lead to a thriving entrepreneurial culture in our country. A collaborative and integrated effort can help us promote entrepreneurship in the true sense.
The need for promoting entrepreneurship in India has never been as urgent as it is today. A country home to one-sixth of the human race needs many more entrepreneurs not just to be self-employed, but also to create millions of jobs. It is essential that these entrepreneurs be supported to scale up their ventures. The time is ripe to get our act together and ignite the spirit of entrepreneurship.
This article presents the author’s personal views and should not be construed to represent the institute’s (IIM A’s) position on the subject.
Author : Professor Amit Karna is a faculty of strategic management at Indian Institute of Management Ahmedabad (IIMA). He is the chairperson of the Centre for Incubation, Innovation & Entrepreneurship (CIIE) at IIMA. Prior to IIMA, Karna taught at EBS University of Business & Law in Germany. He tweets from @amitkarna.
The article was originally published on June 29, 2015 on livemint.