The sheer scale of market opportunity across sectors has propelled India to the third rank in the global startup ecosystem within the first half of the past decade. The country has managed to retain that position so far and continues to compete against China and the US with a significant pool of talent, ideas, capital, and mentorship available. More than that, startups have been able to bring in incessant product and process innovation mechanisms or the creative destruction in the economy, according to the Chief Economic Advisor of India Krishnamurthy Subramanian. In an interaction with Financial Express Online’s Sandeep Soni, on the sidelines of the IVCA conclave on Wednesday, Subramanian dived into explaining startups’ role in India’s bigger economic goals, the contribution of Indian corporates, foreign listings, and more. Edited excerpts below:
Globally, leading economies have bet tremendously on their technology startups to accelerate growth. India too is now looking from that perspective. So, in your $5-trillion-economy goal by FY25, how critical are startups as a cog in the economic wheel?
Startups are very important for multiple reasons. First, they bring innovative models and thereby create products and services that may not have existed earlier. Think about Zomato, Swiggy, Ola, etc., we wouldn’t have thought of booking a cab through a smartphone earlier. Second, the most important thing startups do is that they bring in creative destruction in the economy, and in any capitalist economy creative destruction is extremely important. Monopolistic (businesses) or somebody who has significant market power, technically tend to become complacent and don’t come up with enough innovations. What startups do is that they keep the incumbents on their toes. If incumbents don’t innovate then startups begin to take away business from them. So, this role is even more important in a meritocratic economy where the quality of entrepreneurial ideas rather than connections or dynastic successions help the economy. The 100 unicorns, which India now has, are built on the quality of their ideas instead of any connections or dynastic successions. This is the meritocracy and as India becomes a vibrant economic power, startups will further play a very important role.
But to play that role startups require tremendous capital support. So far, largely the foreign capital has fueled the growth of the Indian startup ecosystem. Do you think large Indian corporates would have to play a bigger role to invest in startups like SoftBank, Alibaba, and others? Also, how can government help?
SoftBank and other large investors provide finance because that’s part of their business model. As we move towards a self-reliant India, this mindset of always asking what government can do needs to change. Something that needs to be replaced is with the private sector doing things for its own competitive benefits, actually, the large incumbents investing in innovation or venture capital and entities funding it. The private sector needs to invest in innovation not just for its own competitiveness. This is the outcome of the socialistic era we were in where everything government had to do but in the capitalistic era where invisible hands of markets build the economy, I think the question should be what should private sector does rather than what can the government do.
So, the investment has to be towards broader research and development? Also, particularly with respect to the government, is there anything specific according to you that needs more attention to enable faster growth of the startup ecosystem?
The first thing the private sector needs to say is that basic research is something we need to be investing in as a country as shown in the Economic Survey this year. The private sector’s contribution to gross expenditure on research and development in India is much lower than in advanced economies. If you look at the enterprise policy focused on the private sector, we are enabling and empowering it. So private sector and media as well need to shed this mindset of focusing on government all the time. What the government must be doing is stepping up the ease of doing business but business and investment have to be done by the private sector.
While the environment to start and grow a business in India is more favourable now than it was 10 years back, but many home-grown startups have relocated their base to countries like Singapore and the US for an even better business ecosystem and eventually to list there. Does that sound fine to you?
The government has really made a lot of efforts in enabling ease of doing business. Improvement in our ranking is very well demonstrative of that. But at the same time, what is also important to note is that the employment startups create is in India and the value they create is also in India. So, there is nothing wrong with them tapping into the capital from other sources and countries because wherever there is capital available, in some sense that capital is coming into India. It may not necessarily be recorded as FDI but it is a form of investment of that kind. So, I don’t think there is anything wrong with raising money from other sources.
The gig economy has enabled employment for many in the past decade. How critical you think it has been towards helping solve India’s unemployment problem?
Well, all of us can see the kind of jobs startups have created. A food delivery person delivering orders or a cab driver ferrying passengers wouldn’t have had such jobs without startups like Swiggy, Zomato, BigBasket, Ola, Uber, and others. The last year’s Economic Survey showed that the growth rate of startups from 2014 to 2018 was 12.2 per cent compared to only 3.8 per cent from 2006 to 2014. The unicorns have created lots of jobs in India and as we see the startup ecosystem developing further, more jobs will be created. So, the gig economy is a big contributor to jobs today.