Column : Getting India to start up

Written by Arindam Bhattacharya | Updated: Feb 9 2012, 06:52am hrs
The discussion at any social evening these days invariably turns to the state of our economy. At one such recent gathering I had attended, a business leader drew an interesting parallel between Indian business families and 19th century English aristocratic families. He commented that the recent downturn and perceived difficulty of doing business in India was forcing Indian business families to send one of their children overseas to set up new businesses despite the huge market potential in India, like the English aristocrats who used to send out their younger son to the corners of the far-flung British Empire to make his fortune, while the elder brother inherited the fathers wealth.

This observation may well be a dramatised conclusion from few examples, but there is no doubt that the mood among business families and entrepreneurs has gone through a complete about turn in the last few years. This perception has to do not just with the recent economic downturn but also the perceived shift in the central governments thrust from India Shining to India Inclusive policies, leading to a feeling that business is out of favour. As someone said during the same conversation, generating employment was less important than giving handouts. So, business families are voting against this perceived policy thrust with their feet, or rather their sons feet, by sending them to explore opportunities outside India.

There is no denying the fact that India is the worlds capital for poverty and there is a crying need for direct intervention to address this unfortunate situation. In that sense, India Inclusive policies are critical for the country. But so is India Shining for economic growth. Both imperatives have to co-exist and support each other. I am sure no one in the current government would question this and would surely like to correct the perception of being anti-business if it really exists. Unfortunately, the reality backs this perception that India is not an easy place to do business. Ask any established businessman or budding entrepreneur and you will hear a litany of challenges in setting up a new business. It is no wonder that India is rated a very poor 132nd in the world by the World Bank on the Ease of Doing Business index, lower than any major developed or developing country.

For a country that desperately needs jobs, a massive 220 million in next 15 years, creating employment should be the number one priority for our policymakers. And there is enough evidence from around the world to show that start-up businesses and their scaling up of operations create most jobs in a country. Unfortunately, it is on this front that we have failed miserably. The fact that we are 132nd on the World Bank list means it is really hard to start and run a new business.

If we go by the data from the ministry of corporate affairs, the number of new registered companies per year between 1990 and 2010 has fluctuated largely between 20,000 and 40,000. The numbers have not increased even though the economy grew 3.5 times in the same period. Start-ups are one of the most dynamic sectors of any economy, not just creating employment but also driving innovation and productivity. They push the incumbents to innovate faster and transform themselves. This stagnation in the number of start-ups in India is clearly unhealthy for long-term competitiveness. Perhaps, most importantly, we are scoring a self goal by not exploiting one of our strengths, namely the high level of entrepreneurship of Indians.

It was 30 years ago, in 1981, that the economic reforms freed up major parts of the economy from state control and launched an economic revolution in the country. Capitalism was no more a dirty word. Businesses grew rapidly and transformed themselves to become more competitive, and created millions of new jobs. The next phase of this revolution was triggered by Reliance in the 1990s when it became the first company to raise money through an IPO and nearly 60,000 investors, including a large number of retail investors, placed their trust in the company. By the year 2000, nearly 50 lakh small investors owned Reliance shares. Creating wealth for your shareholders was no longer a dirty statement. The third phase of this revolution was launched by Infosys with its now famous ESOP scheme for its employees. As the companys fortunes grew, so did the employees. By 2001, Infosys had about 2,000 rupee-millionaires on its staff and more than 213 dollar-millionaires. Not just the senior officials of the companies, but drivers, office assistants and secretaries also got shares and became millionaires. Becoming wealthy employees was no more a taboo.

It is clearly time to carry out the fourth stage of the economic revolution that started in 1981, that of making India a nation of wealth-generating entrepreneurs. To do that, we need to make it easy to set up not 20,000 or 30,000 new companies each year but 10 times that many. We should set the target of improving our 132nd ranking in the World Bank report to the top quartile of all countries over the next 10 years, and secure the future of the younger sons and daughters in the country of their birth rather than overseas. Starting a new business should not be a dirty word for a prospective entrepreneur.

The author is managing director, the Boston Consulting Group, India. These are his personal views