India’s Startups: Engines of Growth And Employment

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Make In India

The “Make in India” week is now over. The main plank of the event was to lure more investors to destination ‘India’. The Pet project of Prime Minister Modi is essentially to make India a manufacturing hub, just like China is today.

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There are several reasons behind this project. The wages in India are lower than most of the competing economies of the world, which acts as a big incentive to investors. In 2014, the average manufacturing labour cost per hour in India was US $0.92 compared to US $3.52 of China. Further, India is going through demographic changes with maximum population in the young age group bracket. Giving jobs to the youth is a must to avoid a social disaster. Furthermore, no country can become strong until it builds on the industrial sector. History shows us how England and the United States were big industrial powers before leading on the global front.

But the pertinent question is- will Make in India work?

As of now, its prospects are not too bright. In the Global Ease of Doing Business Report by World Bbank, India’s rank has not risen much. From 140 in 2014, it has come up to 132 in 2015. Our infrastructure is yet to meet the international standards. Take the case of power supply as an example. India’s textile industry suffers from uninterrupted power supply to have sustained production.

The logistics rate in India is still high compared to other countries like China. As per a report by Permanent International Association of Navigation Congresses (PIANC) China’s logistics cost is 10% of total value of goods compared to 14% in India. To become a part of global manufacturing chain, these rates need to be brought down.

The labour laws in India are still not flexible. The Big MNC’s across the globe demand a ‘hire and fire’ system. In India, it is very difficult to terminate jobs.  Moreover, even if these laws are passed, the unskilled manpower in India is another hurdle.

The second generation reforms in taxation such as GST is still pending. Thanks to the opposition in our parliament. Without these reforms, Make in India cannot realise its potential.

Mr PM, instead of luring foreign investors and going on several trips around the globe, why don’t you spend some time in your own country and introspect the Indian economy?

Look at what is happening in the Indian market. Today, jobs are created not in big industrial houses but in the many start-ups that have proliferated in past few years. As per a report by NASSCOM, start-ups provided 80,000 jobs in 2014-15. Moreover,most of the international firms that setup shops in India go for automation. Thus, anyways, they won’t be job churners.

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Sadly, start-ups suffer from issues which require dedicated work from the government. These issues are availability of credit, difficulty in getting registered, market inefficiencies, complex compliance procedures etc. If the government can dedicate its resources on such sectors instead of huge campaigns like Make in India, it will definitely do wonders to the economy. The Japanese firms such as Mitsubishi were once small companies. With the government’s support, they are now international giants.

Emulating China won’t be of much help. We have already seen in case of Special Economic Zones (SEZ), a concept taken from China that became a flop show. Thus, it is better to work on ‘Made in India’ rather than ‘Make in India’.

Nishant Kumar

Image Sources:

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