Entrepreneurship in India

Demographics trend in India, the second most populous country in the world, suggest that a million people join the labor force every month. This amounts to 12 Million Indians joining the labor force every year, which is more than the entire population of Sweden. With millions of young people joining the labor market every month, the question is if there will be enough jobs for them.

India produces too few entrepreneurs for its stage of development. The pace of creation of new businesses and new start-ups in India is low compared to the rest of the world. A slow pace of entrepreneurship is associated with a slow pace of job creation. There is huge heterogeneity in entrepreneurship within India, with new establishments concentrated in a few places. There is extensive evidence of agglomeration economies.

Supportive incumbent industrial structures for input and output markets are strongly linked to higher establishment entry rates. For a city, start-ups are more frequent in industries that share common labor needs or have customer supplier relationships with the city incumbent businesses. However, strong agglomeration economies and supportive incumbent industrial structures will do not explain why heterogeneity in entrepreneurship within India should be much bigger than what other countries have experienced.

The differences in the spatial location of entrepreneurship are not a result of the differences in entrepreneurial returns. Anticipation of abnormal returns is not the driving force. Demographics have played only a limited role. The two most consistent policy factors that predict overall entrepreneurship in a district are its local education levels and the quality of local physical infrastructure. These patterns are true for both manufacturing and the services industry.

Good physical infrastructure is essential to supporting entrepreneurship, economic growth and job creation. Goods and services can’t be produced or jobs created, without access to roads, electricity, telecommunication, water, education and health. The link between education and entrepreneurship has strong roots. Education improves skill and spreads ideas more quickly. Programmes that promote education in poorer districts can increase the supply of potential entrepreneurs, provide boarder benefits to the communities and enhance equity.

The jobs challenge faced by India will be shaped not just by How India invests in physical and human infrastructure, but by global trends towards increasing use of digital technologies. Heavy manufacturing is likely to start shedding jobs first. Light manufacturing still has the potential to create some jobs. Many more new jobs will be created in modern services. The future of jobs will be driven more by education and skills than in the past. Policymakers will need to introduce innovations in the content and delivery of education. The potential of technology enabled solutions, supported by a stronger foundation of digital literacy will go a long way in putting the future of jobs on a stronger footing.

The future of jobs remains positive, given that India is starting from a low base in entrepreneurship. India’s strength in entrepreneurship lies in its small enterprises. They are now well integrated in global supply chains. Last but not least, women headed entrepreneurship will become the new driver of job growth in future. Districts that have a higher level of local education and better quality of local infrastructure will attract many more entrepreneurship and create many more jobs.