Entrepreneurship in India: The Startup Culture

Abstract

Startup entrepreneurs in India are consistently making it to the front page of daily news media. India has now become a new hub for startups. This paper traces the path leading to the new wave of entrepreneurship in India. It will examine the socio-political financial factors related to the emergence of new entrepreneurs in India. I argue that entrepreneurship in the form of startups is critical to India’s future journey towards becoming a global superpower. Entrepreneurs must be supported by additional, concrete government policy.

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1. INTRODUCTION

Today, there are 582 million entrepreneurs spread across the world. When merchants from the West made their first appearance in India, the industrial development of this country was not inferior to that of current, advanced European nations. Hence, the concept of entrepreneurship is not new to India, and we are currently witnessing a new wave of Indian entrepreneurs.

India has now become a new hub for startups since three major cities Bengaluru, Mumbai and Delhi have ranked amongst the top 40 start-up hubs across the world. According to the OECD (2007), an entrepreneur is an individual who creates a new business, plays an active role in its operations, assumes most of the financial risk, and enjoys most of its success. The process of creating a new business is known as entrepreneurship and is often driven by new ideas for products or services.

Entrepreneurship has become the new buzzword in Indian media, with startup entrepreneurs making their brand their identity and consistently making it to the front page of daily news media. New-age companies are penetrating tough market sectors from finance to health and solving delivery challenges that traditional organizations and the public sector were unable to tackle.

This paper traces the path leading to the new wave of entrepreneurship in India. It will examine the socio-political financial factors related to the emergence of new entrepreneurs in India. I argue that entrepreneurship in the form of startups is critical to India’s future journey towards becoming a global superpower. Entrepreneurs must be supported by additional, concrete government policy.

1.1 Who is an entrepreneur?

Defined by Wickham (Brownson 2013) the word entrepreneurial is the adjective that is given to describe how the entrepreneur undertakes what they do. Entrepreneurial activity is largely dependent on various economic, cultural, political, and technological factors (Wennekers 2006). These factors help in explaining the cross-national differences in terms of the rate and intensity of entrepreneurial activity.

The key factors of a successful entrepreneur can be curiosity, optimism, adaptability, courage, empathy, problem solving skills, persistence, and a nature to accept failure. Entrepreneurs make a difference in their community and the world by using entrepreneurial mindsets. They are considered agents of change within the economy. To increase employment opportunities and facilitate economic growth in India, fostering entrepreneurial culture is important.

1.2 Startups: The New Wave of Entrepreneurial Culture in India

According to Steve Blank, a startup is a business in the first stage of its operation that ‘is searching for answers to the product it will sell, the customers it will serve and the way it will make money from delivering value to its customers’. Through innovation and scalable technology, startups can generate impactful solutions, thereby acting as vehicles for socio-economic development and transformation (Korreck 2019).

According to NASSCOM (2021), the overall tally of startup unicorns in India is 83. From 504 startups and approximately 10 jobs generated by one startup in 2016, the amount in India has grown to 14740 recognized startups and more than 170,000 jobs in 2020. India has become the third-largest startup ecosystem in the world after the US and China. According to data provided by the Planning Commission (2013), more than 40 million Indian rupees have been invested to fund 384 startups on a large scale. 30 states and union territories have dedicated startup policies with approximately 600 districts having at least one recognized startup. 319 eligible startups have also been granted tax exemptions.

Startups need a supportive government to increase the country’s ranking in ease of doing business (Sharma 2014). India has recognized the need to develop innovation and incubation centers to foster entrepreneurial innovation. Key factors that have led to the rise of startups in India therefore include the increased scope of market potential, technological change and increase in support provided by the government. The “Start-Up India” program launched by the central government in 2016 was also a significant factor in increasing the number of startups in the country. Under this plan, startups were entitled government benefits including tax incentives, funding assistance, support in public procurement among others (Planning Commission 2020).

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2. STARTUP FINANCING

Raising capital is an important step in launching a startup. At different stages of a business’s growth, entrepreneurs need different amounts of capital injection for which the sources will differ. The phases of a startup’s development include seed stage, startup stage, early growth stage and late growth stage (Hofstrand 2022).

A common form of obtaining start-up capital is an owner’s private funds, where personal savings are used.  Self-financing allows the creator of the company to maintain control over it (Landström and Mason 2012). Another source can be in the form of loans from a commercial bank (Ayadi and Groen 2014). Yet another method is crowdfunding, which is the concept of collecting funds for starting a business from multiple individuals and organizations via social networking sites and web-based platforms (Misra 2022).

Angel investors are individuals who offer promising startup companies funding in exchange for a certain amount of business equity or royalties. They are typically willing to accept risk and demand little or no control in return for the chance to own shares of a business that could be valuable in the future (Connell and Curry 2022).

In India, financing can also be availed from government schemes. The government of India has various loan schemes for benefitting startups, SMEs and MSMEs. These were established with the intention of promoting the socio-economic growth of rural India. Non-banking Financial Companies (NBFCs) and Micro Finance Institutions (MFIs) provide business loans for startups without requiring a credit score or financial history. Credit cards for business purposes have also risen with an increase in startups in India. If the concerned startup does not require large amounts of money at the initial stages of business, then credit cards can be used for transactions and timely repayment to avoid penalties in the form of high rates of interest (Misra, 2022).

Finally, debt financing or financial leverage occurs when a startup raises capital by selling debt instruments in the form of bank loans or bonds (IOSCO, 2017). In debt financing, the loan is secured or collateralized with the assets of the company taking the loan. This is usually part of the secured loan. If the loan is unsecured, the line of credit is usually less. A company undergoes debt financing to eliminate the need of investing their own capital in the business. One of the main advantages of debt financing is that the lender has no say in how the company is managed since the business relationship ends once the loan is repaid in full (Hofstrand, 2022).

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3. Limitations of Entrepreneurship in India

Numerous frameworks have been developed to describe entrepreneurs and the cognitive characteristics that forecall success (Siu 1995). One approach is to consider the end goals of an individual entrepreneur. For example, the motive could be self-employment and running an independent business, or it could be creating new economic activity for development and improving society (Davidsson 2007). However, the income flow is uncertain and not guaranteed in the early stage of a business venture. As a startup, it is difficult in the early stages, as customers often prefer established businesses for purchasing products and availing services. They also rely on public reviews and personal references to choose among businesses for availing the services they require.

In India, there are cultural nuances in the entrepreneurship experience. The definition of ‘entrepreneurial spirituality’ encompasses the essence of ‘personal religious values’, which refers to the need to connect with an Ultimate, driving individuals to engage in certain behaviors (Fernando 2007). This definition focuses on the idea of individuals being led by another worldliness that potentially results in “greater concern for their employees, humanity, and social responsibility” (Fernando 2007).

Indians have unique social cognitive processes based on their history and value systems founded in Hindu philosophy (Robinson and Stimpson 1991). In social psychology, management, and organizational behavior literature, references are made to Indians’ ‘duality’, ‘synthesizing mindset’, ‘toolbox mentality’ or ‘context sensitivity and balancing’ (Sinha and Kanungo 1997). These labels indicate a unique flexibility and adaptability to varying contexts that enable Indians to be highly functional even when contexts dramatically change or when it conflicts with Indian cultural norms. This adaptability has led some to refer to Indian society as one where the context receives higher priority in guiding individuals’ behavior than their personal values or cultural norms (Keesing 1974).  

The other, more tangible obstacles that Indian entrepreneurs face are in the form of low-quality business infrastructure and low internet penetration. Government regulations form complex barriers for new entrepreneurs through complicated tax compliances, licenses, corruption, red-tape, and difficulties in procuring startup capital. According to a survey conducted by the National Knowledge Commission (2008), 50% of entrepreneurs experienced difficulties while seeking statutory clearances and licenses. Two-thirds faced hassles while filing taxes and 60% of respondents stated that they encountered corruption. Survey respondents also reported hurdles in accessing reliable information on registration procedures, finance, and other relevant schemes.

These factors contribute to a negative perception around entrepreneurship by Indian youth. IIM-A’s research (2006) around entrepreneurs from different parts of India conclude that Indian youth often have a negative approach to entrepreneurship, stemming from deep-rooted social perceptions and cultural norms. The data suggests that young entrepreneurs had to fight unfriendly environments to keep their ventures afloat. According to the World Bank and the IFC (2011), the Indian business environment falls behind on many parameters for supporting entrepreneurship, being ranked 132 on the global index of ease for doing business.

India’s economy can potentially gain significantly from the country’s characteristic features — a democratic open society, a strong technology base (with capacity for leapfrogging), unparalleled diversity, vibrant capital markets (including growing private equity and venture capital markets), an increasingly youthful population (50% of India is 25 years and younger), a sizeable market of a large number of customers with vast unmet needs as well as an environment of full and free competition in the private sector.  

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4. Policies to promote and encourage entrepreneurship

Public policy is defined as the government's interventions to influence certain outcomes. Governance is the relationship and interaction between various stakeholders such as government, business, and academics. The two ideas are intertwined and affect both the supply and demand side of entrepreneurship. For instance, the government may introduce a policy that seeks to increase the number of new entrepreneurs, leading to an increase on the supply of entrepreneurship.

The desire to stimulate economic and job growth via the application of entrepreneurship has been a common theme in government policy globally since the 1970s. Over the last two decades, the government of India has instituted several policies to foster a culture of innovation and entrepreneurship. On 16 January 2016, the Government of India launched the ‘Startup India’ program with the objective of building a strong ecosystem for nurturing innovation and startups in the country that would drive sustainable economic growth and generate large scale employment opportunities (Indian Ministry of Commerce and Industry 2016). Partnerships between startups and corporate organizations has been driving the growth of early startups in India. For instance, Microsoft India has accelerated more than 4,000 startups.

The challenge for government policy is to develop policies that work but avoid the temptation of direct intervention. Government ministers can play a critical role in fostering enterprise and innovation as they can direct government departments and agencies to focus and develop effective policies (Mason and Brown 2014).

India has made significant progress in strengthening its entrepreneurial and startup ecosystem. Government institutions are now creating awareness in colleges, supporting mechanisms, incubators, funding programs that make credit easier for startups. The Indian entrepreneurship policy framework and startup ecosystem has evolved over the years as one with the potential to facilitate new ventures more easily.

As competition is increasing day by day in all sectors globally, the government is generating employment, supporting local businesses and enhancing the global competitiveness of the small firms under new initiatives like the ‘Make in India’ policy enacted in 2014. The National Institute for Small Industries Extension Training (NISIET) is a training institution in India that has developed an integrated model for entrepreneurship development. It pioneered trainers’ training programs to develop trainers in local areas. NISIET has developed specific training programs for educated unemployed youth, technicians, rural youth, women, and artisans (UNCTAD, 2012).

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5. CONCLUSION

Economist T.N. Srinivasan stated that India has been an entrepreneurial society with suppressed entrepreneurial skill, which is now thriving.’ Entrepreneurship in the form of startups has grown rapidly in the past twenty years, creating wealth, and generating employment. Crucial efforts initiated after economic liberalization — including systematic attempts to reduce the ‘license raj’, greater efforts to make finance more easily accessible to entrepreneurs and other institutional support to ‘techno-preneurs’ — have helped improve the climate for entrepreneurship (NKC, 2008).

The number of entrepreneurs and startups is likely to increase in the future in India and across the globe because of beneficial incentives that globalization has brought, including emerging markets, increased political will and technological innovation. The rich talent pool that once provided back-end support for US companies has now turned towards entrepreneurship, being expected to grow to $20-25 billion over the next five years.  

Entrepreneurship has been widely recognized as a potent factor in economic development. The concept of entrepreneurship is decorated by various attributes like ‘innovation’, ‘organization building ability’, ‘gap-filling function’, ‘input completing’ etc. The persons with these qualities are required to initiative and sustain the process of industrialization (Wohl, 1969). As nations around the world grapple with unique domestic transitions and unpredictable international environments, entrepreneurship policy is viewed as an important tool for sustaining and growing an economy (Venkataraman, 2000). Formulation of an entrepreneurship policy is complicated and complex but is also the need of the hour in India.

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