The Economic Survey’s multidimensional report puts out various positive changes that have happened within the Indian economy in the past few years. Many of these changes have been pushed by the initiatives of the Narendra Modi government, including in the area of entrepreneurship. The role of entrepreneurship has always been acknowledged by the Government, which has also thanked the businessmen of India on several occasions publicly. The Economic Survey has brought out the immense benefits that the government’s initiatives that have served to create jobs, boost entrepreneurship talent, and generate wealth for the nation. Here are the key important takeaways from the Economic Survey on Entrepreneurship and Wealth Creation.
INDIA’S NEW FIRM CREATION GROWTH IN THE WORLD’S TOP THREE
India now ranks third in number of new firms created, ranking Behind the United States and Brazil. The World Bank’s Data on Entrepreneurship has clearly demonstrated that new firm creation has gone up dramatically in India post 2014.
As compared to a formal sector annual growth rate of 3.8 per cent from 2006-2014, an annual growth rate of 12.2 per cent was recorded between 2014 and 2018. Consequently, from about 70,000 new firms created in 2014, the number has grown by about 80 per cent to about 1,24,000 new firms in 2018.
This massive change also clarifies one important thing – there was a clear dip in the Manmohan Singh prime minister between 2012 and 2014. Contrasting this with the rebound leading to a continued growth in new firm creation, one is rest assured that the Modi era has ushered in a new, refreshed wave of entrepreneurship.
Figure 1: Growth in New Firms in India
SERVICES SECTOR DOMINATES GROWTH IN NEW FIRMS
The Economic Survey has reiterated India’s new economic structure by highlighting that its comparative advantage in the Services sector reflects even in the new firm creation data. Services sector has driven India to its recognition as a growing economic power, a reality also noted in the Task Force Report on the National Infrastructure Pipeline (NIP). In fact, new firm creation in services sector has outstripped that in manufacturing, infrastructure or agriculture. Further, as the data on firms clearly shows, there is an uptick from 2015 after back to back years of dip of the UPA era.
Figure 2: Category Wise Growth of New Firms in India
ENTREPRENEURSHIP IS NOT JUST DRIVEN BY NECESSITY
One important takeaway has been the conclusive demolition of the view about entrepreneurial activity being largely necessity driven, borne from a lack of alternative employment options. The economic survey is very clear in saying that:
“Rather, the findings highlight the incidence of productive and growth-focused entrepreneurial activity in the formal sector in decades ahead.”
Further, the CEA has put out data to demonstrate how entrepreneurship at the bottom of the administrative pyramid – a district – has created significant impact on wealth creation at the grassroot level. Thus, wealth and jobs are being created at the grassroots level, and is not just concentrated in specific clusters and urban centres as was traditionally the case earlier.
EAST, NORTH-EAST LAGGING BEHIND, BUT CATCHING UP FAST
The Economic Survey found a correlation between literacy and education at the district level and local entrepreneurship. The eastern part of India has the lowest literacy rate of about 59.6 per cent according to the census of 2011. This is also the region in which new firm formation is the lowest. In fact, the impact of literacy on entrepreneurship is most pronounced when it is above 70 per cent.
This is something that Prime Minister Modi has pointed out earlier. Mr. Modi has specifically stated the East has been left behind on the growth map unlike the West has been zooming ahead. To this end, a plan was also announced on bringing the eastern part of India with the western part.
Figure 3: Growth in new firms across regions over time
However, the eastern region is moving fast now. The Economic Survey has shown that states in the highest quintile of relative entrepreneurial activity in the Agriculture sector are Manipur, Meghalaya, Madhya Pradesh, Assam, Tripura and Orissa.
Interestingly, Establishments in the North East are more likely to be private enterprises in the food business such as organic produce farms and tea plantations while a majority of the establishments in Madhya Pradesh and Orissa are farmer producer companies, designed as hybrids between cooperative societies and private limited companies that organize farmers into a collective to improve their bargaining strength in markets. Clearly, the impact of a food processing revolution targeted by the Modi government has had positive benefits.
EASE OF DOING BUSINESS POLICIES HAVING POSITIVE BENEFITS
Finally, it has been confirmed that policies enabling ease of doing business and flexible labour regulation enable new firm creation, especially in the manufacturing sector. This has been the case of the states like Gujarat and Rajasthan which reported the highest entrepreneurial activity in the manufacturing sector, while Punjab saw a significant improvement in its ease of doing business score. This in tun has helped to identify the areas of investments of state governments in particular to ensure this transformation – Literacy, education and physical infrastructure – to foster entrepreneurship and thereby job creation and wealth creation.
The Economic Survey 2019-20 has brought out several important points which also determine the future course of action of the government. It becomes increasingly evident that the Narendra Modi government is convinced about the criticality of entrepreneurship for job creation and boosting GDP growth. This has set the roadmap of action for the government in some ways – the government can perhaps be expected to make announcements on education and infrastructure, and give a boost to MUDRA and Startup India buoyed by their successes.