Entrepreneurship in India

Entrepreneurship in India

“Businessopportunities are like buses, there’s always another one coming.”                                             

Richard Branson-founder, Virgin enterprise.     

The Indian economy today boasts of many magnificent opportunities but sadly enough, not many of them are fully utilized. The entrepreneurship front of the country epitomizes such a condition. Liberalization  of economy started by   PV Narasimha Rao government in 1991 and the Information Technology boom of the mid and late 90′s have ushered in tremendous changes and set the stage for a wave of entrepreneurship taking India by a storm. The capacity of Indians for entrepreneurship is substantial. However, the society and government have not been very encouraging towards entrepreneurship in India. The rankings of India have also been deteriorating in the recent years. From 2nd in the field of Total Entrepreneurship Activity (TEA) according to the Global Entrepreneurship Monitoring Reports, India’s position has been slipping ever since and has reached a level rather close to the world average. In spite of the shortcomings, it ranked ninth in the survey of entrepreneurial countries by Global Entrepreneurship Monitor (GEM). India ranks the highest among a group of countries in necessity-based entrepreneurship, which is associated with developing countries. Conversely, it ranks fifth from the bottom in opportunity-based entrepreneurship.

Indians have entrepreneurial capacity. However the society and government are not very encouraging towards entrepreneurship. To a large extent, the Indian society is risk averse. People usually seek secure and long-term employment, such as government jobs. The physical infrastructure needs to be improved. Social Attitudes, lack of capital, inadequate physical infrastructure and lack of government support are major factors of hindrance. While the growth trends of India and China are similar, both had initiated different policies in their approaches. While China was mostly growing on FDIs, India was building a rather self-sustaining model for growth as it concentrated on the institutions that supported private enterprise by building a stronger infrastructure for its development. The Government has encouraged entrepreneurship by providing training and also the facilities to succeed, particularly in the rural areas. One style of innovation that really works in a country as large and diverse as India, is grassroots innovation: this includes inventions for a milieu that is quintessentially Indian.

The middle-class Indian has been growing rapidly in context to the global economy. In an era of globalization, a middle class of 250million and rising can be considered a “veritable gold mine”. The G7 economies account for almost 67% of the global GDP at a market exchange rate and this has been the scenario since 1965. Underpinning the performance of the G7, and indeed driving the global economy, is a large middle class. The middle class is an ambiguous social classification, broadly reflecting the ability to lead a comfortable life. The middle class has played a special role in economic thought for centuries. It emerged out of the bourgeoisie in the late fourteenth century, a group that while derided by some for their economic materialism provided the impetus for an expansion of a capitalist market economy and trade between nation states. Ever since, the middle class has been thought of as the source of entrepreneurship and innovation—the small businesses that make a modern economy thrive. Middle class values also emphasize education, hard work and thrift. Thus, the middle class is the source of all the needed inputs for growth in a neoclassical economy—new ideas, physical capital accumulation and human capital accumulation. The role of Asia, who accounts for just less than 1/4th of the middle class population of the world, could boast of doubled figures of the same by 2020, accounting for around 40% of the global middle class GDP. With the exception of Japan and Oceania, Asia’s rapid growth has not been driven by a large domestic middle class. The expansion of factors of production driving potential output has happened without a significant middle class. Saving and education have been willingly undertaken even by poor households, in the face of large returns to such activities in a globalized world, as well as by governments. Technology has been imported from abroad by corporations through FDI, imported machinery and participation in global supply chains. Thus with the American consumers retreating back after facing fears of a double dip recession now, it suits well for the emerging Asian economies like China and India to step up and fill the consumption voids. Within Asia there is significant talk of rebalancing towards domestic demand (more specifically domestic consumption) as a way of sustaining growth in the face of potentially sluggish exports. But the policy prescriptions to achieve such a rebalancing are not easy. They involve creation of a social safety net, medical insurance schemes, and better public education services. In short, Asian consumption is tied in the minds of many analysts to long-term institutional changes. Given the difficulties of implementing such changes, it is hard to be very confident that this rebalancing will happen in the medium term. The lack of inclusivity is again clearly shown in the Indian scenario. The middle class consumption levels are far below the average global levels. There exist such disparities on the expenditure side due to the fact that the middle class is largely inactive in this process.

Moving back to the production side of the economy, the retail industry in India has been showing tremendous potential amidst the bullish growth trends of the economy as a whole. To prove this point, we see that the penetration of the organized retail sector in the US is about 85% while that in India is just about 8% (Velagapudi, 2011). The retail industry can be divided into registered as well as unregistered sectors. The unregistered sector, which usually includes all the small grocery shops, street vendors etc, accounts for over 93% labor force. Although as seen earlier, the value added to the SDP and consequently the GDP isn’t even comparable to that by the organized sector. The initial target is to bring the contribution of the organized sector to 9-10%. Retail industry is also the 2nd largest employment provider in India after agriculture. The penetration of organized retail will happen much faster in the coming decade, even in tier 2 and tier 3 cities, because of the changing demographics of our population and a healthy rate of economic growth. With good underlying economic growth, increase in disposable income, increased awareness due to penetration of broadband and mobile devices with internet accessibility, the demand for consumer goods will rise. With better systems and processes in place, all this is bound to assist in increasing the penetration of the organized retail sector in India. The organized retail market in India is expected to grow to 14-18% by 2015 of the total retail market in India from 8% in 2008. Its value is estimated to be around US$450 billion by 2015 (Mckinsey Reports).The BMI India Retail Report for the first quarter of 2011 forecasts that the total retail sales will grow to US$ 674.37 billion by 2014, from US$ 392.63 billion in 2011. The growing wealth with the middle-class in India, the population size and the big percentage of population being in 30s, makes immense possibilities for entrepreneurial growth in the retail sector. Some of the fastest growing segments of this industry are food & beverages, electronics and apparels. The consumer electronics segment is expected to grow at about 55% between 2011-2014, with most of the growth driven by demand for TVs, mobile devices and laptops and desktops. With changing lifestyles and habits, food segment is also expected to double to US$ 150 billion by 2025.

However, there are several limitations which limit the scopes for Indian entrepreneurs, thus hindering their growth and restricting opportunities. Some of them are:

Lack of capital: In most recent events, during the recession of 2008, the Indian middle class entrepreneurs suffered the most due to the withdrawal of foreign investments which got converted into a lack of credit, which then led to the failure of a lot of ventures. Also, there is the typical role of animal spirits where new investors prefer to invest in successful old ventures and feels hesitant to invest in the newer ones.  The no. of venture capitalist and angel investors in India is very low. Also significant yet unexplainable is the fact that Indian entrepreneurs lack proper guidance, i.e. there are not many successful mentors.

The Indian society is Risk Averse: People normally look for long-term and stable employment, such as government and public sector jobs. There is an urgent need to overhaul the physical infrastructure. Social Attitudes, lack of capital, inadequate physical infrastructure and lack of government support are major factors hindering entrepreneurship in India.

Mediocre Pool of Talent:  the workforce base in India is considered to be very mediocre with the majority migrating towards the IT sector, thus draining other sectors majorly.  Also the technical pool of talent is also considered not “up to the mark”.  Another factor contributing to the lesser no of entrepreneurs is the fact that it’s considered to be “less glamorous” an occupation, although this perception is slowly changing with the increasing publicity it’s receiving as well as the initiatives that are being taken to promote entrepreneurship amongst the youth.

With a burgeoning middle class, India has a huge potential, which, if tapped, can be a vast market for products and services. Entrepreneurs can prosper by catering to the requirements of this segment. India, with its abundant pool of talent in the IT domain, management, manufacturing and pharmaceuticals, has become the choicest destination for outsourcing of services from all over the world. The scene for Indian entrepreneur is ideal. If he can seize the current opportunity, he can succeed not only in India but also globally.

Parikshit Redevil