Today’s entrepreneurial boom may disappoint us
PremiumNew venture registrations are up, but this could also reflect self employment driven by job losses. What we need are ambitious startups that can recruit people in ever larger numbers
It’s just the sort of news our unemployment-stricken economy would welcome wholeheartedly. Registration of new businesses in India rose to a three-year high in fiscal 2021-22. This suggests an entrepreneurial boom. Data from the ministry of corporate affairs shows its count of companies set up in 2021-22 at 167,076, a 7.5% increase over the year earlier. In 2019-20, that number stood at a bit above 122,700. Given how badly the covid pandemic hurt commercial activity, this trend may appear to conform with business guru-speak about great startups springing from adversity. Past shake-ups have been inflection points for the spirit of enterprise to thrive. Today’s startups could be the market movers of tomorrow. Yet, before we celebrate, we must take a closer look at this boom.
What has motivated this rush of entrepreneurship is not easy to assess. A hint may lie in the breakup of India’s startup data. Of all the new ventures created last fiscal year, more than three-fifths were in the services sector. The industrial sector accounted for about 47,800 of them, while agriculture and allied activities added some 13,400 to the total. To the government’s credit, starting a business has certainly become easier than it was, and, as opportunities and big ideas can sprout anywhere, we could well see successes emerge in all three sectors. Services are where most of the action has been, so its popularity is no surprise. But these also cover markets that require very little capital investment to satisfy. Indeed, an elementary service startup would require no more than a laptop—or smartphone—and a wifi connection. Juxtapose this ease of doing business with anecdotal trends observed since the covid outbreak, and it would be fair to assume that a significant proportion of new set-ups in an era of stiff GST surveillance are just modest home operations run by laid off employees. In the tech world, for example, many app developers who got pushed out of jobs have opened shop as independent suppliers, though artificial intelligence and self-coding machines could still deprive them of work contracts in the years ahead. The so-called gig economy, in particular, throbs with solo gigs. Few of these single-person enterprises are likely to expand staff beyond a small crew for assistance, let alone attain a growth path that can create new jobs year after year.
In any case, only a tiny fraction of ventures ever achieve big-time success, which is another reason why India’s startup count cannot serve as an indicator of future wealth creation. Moreover, we must not let positive data on startups detract attention from India’s acute job scarcity. This is not to undervalue the importance of self-employment per se—be it at a ‘pakoda’ level or otherwise—but to emphasize the role of regular salaried employment in economic growth. For value addition, we need hot new enterprises to scale up and start hiring ever larger numbers. It is usually task specialization within companies that delivers the productivity needed for an economy to progress on per-capita income. So, even as we ease the startup process for would-be entrepreneurs, we must do all we can to foster rapid business growth. Unfortunately, regulatory hold-backs still abound in various market categories and compliance burdens alone can pose a size barrier. Entrepreneurs should be able to dream big right from the get go. We have Start-up India and other initiatives in place for them. But we need to go beyond slogans and the ease of starting up if we must catalyse value-addition and job creation.