+91-11-43364336

Tradeindia's official blog for business tips and SMEs Insights

Start up ecosystem in India vis-a-vis China

By on January 24, 2017 in Business Inspiration with 0 Comments

startup

 

Its a commonly accepted fact that entrepreneurship and start ups play a vital role in any country’s overall economic and social development. This fact is even more true in case of countries with very large population ( like India has). Realizing this, Prime Minister Narendra Modi recently launched an ambitious programme named as Start Up India, Stand Up India. This initiative along with his other initiatives such as Make In India is aimed at making India one of the world’s leading countries in innovation with a vibrant start up ecosystem, thus emulating what happened in the United States in 1960′s to 1980′s( 1960′s to 1980′s was the time in America when innumerable start ups were founded by some creative individuals or a group of them, with some of those start ups going on to become global behemoths such as Apple, H.P, Microsoft, Intel etc.)

For any nation with over a billion plus population, entrepreneurship and start ups are essential, as these are the ones that provide jobs to people, bring in revenues etc. To elaborate a bit more, millions of Indians are still obsessed about landing a government job, the reasons for this are multifold ranging from societal preference for a secure job to the lack good opportunities in the private sector. This has resulted in countless educated and qualified Indians being unemployed and looking for that dream government job, even after reaching their mid 30′s. For people questioning the need for start ups, the above mentioned fact is the single biggest reason of why we should have more start ups as these are the ones that will provide job opportunities for millions of Indians.

Apart from India, China is the only other country that has been marked as a potential future superpower for over the last decade and a half. Just like India has start ups that have turned out to be unicorns ( Flipkart, Snapdeal, Ola etc.), China has more of them, with some notable examples being Alibaba, Xiaomi, Didi Kuaidi, Lufax and many more. Another important fact to note here is that Chinese start ups are much more successful and have a much bigger global presence than Indian start ups. To illustrate a bit more,

Start ups: India and China

Source – yourstory.com

 

The above info-graph is enough to give you an outline of how Indian e-commerce companies still lag behind China’s. Same is the case in other sectors, be it cab aggregators, manufacturing firms etc.

 

Start ups in China and India: A historical perspective

There was a time in India in the 1970s and 1980s when manufacturing start ups dominated the landscape. These start ups were funded and nurtured through seed capitals and also soft loans that were provided by DFIs ( development financial institutions both at the center and the state levels). Some notable firms that were the beneficiaries of various DFIs were Reliance, Infosys and Biocon. The modus operandi of these development financial institutions was simple, these received healthy returns when the companies they provided loans to did well. If in case the company failed to do well, the loans were written off. It’s a widely accepted fact that at least 6 or 7 out of 10 start ups end up failing, this model was unsustainable in the long run, although it had its fair share of beneficiaries.

The corresponding time period in China was a time of great social and political upheaval largely as a result of the cultural revolution taking place there. This was a time when communist China was almost fully closed to the outside world and when private enterprises and profits were thought of as almost taboo. So naturally there was no question of any start ups and relative ecosystems.

 

Ease of establishing a business in India as compared to China

  • Until about an year ago, starting a business in China was much simpler as compared to India, with much lesser approvals required. Recent initiatives of the Indian government such as “start up India stand up India” are majorly aimed at correcting this
  • There’s an increasing influx of VCs and PEs in India from the world over, this coupled with Indian VCs has ensured easier availability of capital for start ups
  • One aspect where India has to improve with respect to China is stability in tax laws. If there are major changes in tax laws every year, it becomes difficult for all firms (start ups included), as planning is a necessity for all businesses
  • Various prestigious institutions( IITs, IISC are some examples ) in India have always had incubation centers, whose primary motive has been to nurture innovative ideas. Recently the Indian government has put a special emphasis on increasing their effectiveness
  • One thing the Indian government can do in the near future is to formulate an effective bankruptcy law in line with the laws in Europe and United States ( China did the same in 2007). This would ensure simpler exits for all the concerned parties when a start up doesn’t succeed
  • Along with all of the above, the Indian government has also taken many other steps to ensure the betterment of start up ecosystem such as making it easy to get an electricity connection, nullifying arcane laws and restrictions, limiting the scope for bureaucratic interferences etc.

Can India become a start up nation like Israel

Over the past few years, Israel’s economic miracle has caught the eye of economists and also world leaders. It won’t be wrong to label Israel as the world’s start up nation. Israel, a 60 year old country, surrounded by enemies on all sides and with a population of only 7. 1 million has probably the most vibrant start up ecosystem in the world today. As of now, 63 Israeli companies are listed on the NASDAQ, the most for any foreign country.

Can India do something similar? your guess is as good as mine. If the aforementioned policies that have recently been formulated by the Indian government are effectively implemented in a time bound manner, then India can emulate Israel some years from now. China has been looking to do the same and has been taking concrete steps to achieve it. Simply put, if India wants to outgrow China, it’s time for it to walk the talk and work in an effective and decisive manner.

Tags: , ,

Subscribe

If you enjoyed this article, subscribe now to receive more just like it.

Post a Comment

Your email address will not be published. Required fields are marked *

Top