Significance of entrepreneurship to the Indian economy Essay Example

and equal opportunities for all individuals.

India has a long-standing history of entrepreneurship, with self-made individuals such as farmers, craftsmen, and traders shaping society during its early trading days. Through exchanges with Persia, Europe, and Eastern countries, trade flourished allowing India to hold control over 22.6% of global spice and fabric trade by 1750. However, this growth was disrupted by European invasion and colonization which resulted in exploitation by the British Empire while also disconnecting India from the industrial revolution.

Although there were some households that collaborated with imperialists during this time period, most did not benefit from Western countries' industrialization efforts. Nevertheless, Indian entrepreneurs found success in fabric and steel sales due to high demand during the first half of the twentieth century. However, India's closed economy and lack of competition limited these benefits to only a few business houses. Consequently, there was generally a negative perception towards business communities among people leading to limitations on their roles after independence.In response, the businessmen formed the Bombay plan and demanded the establishment of "license raj" to create a more business-friendly environment. The government relied on industrialists for nation-building and formulated a five-year plan. However, with the subsequent introduction of license raj, entrepreneurs faced challenging times as specific sectors were licensed and trade was restricted.

The death of Nehru and the arrival of the Green Revolution proved advantageous for some entrepreneurs in Punjab while leaving others behind. Lal Bahadur Shastri implemented policies such as reserving licenses for small-scale industries and introducing the MRTP act, which consolidated license raj. However, when Indira Gandhi took over, there was a wave of nationalization that resulted in many profitable private companies being overtaken

by the government.

Unfortunately, the government's intention to create a socially conscious private sector backfired as widespread corruption and graft became prevalent. To address this issue, incremental reforms were introduced by selectively deregulating certain sectors and promoting new entrepreneurs within existing business houses.

During this challenging period, both the Gulf War and second oil crisis had a significant impact on the Indian economy. In response to these extreme conditions, the license raj was dismantled resulting in decreased import duties and increased competitiveness.
Financial deregulation and the depreciation of the rupee have supported competitive exports and the emergence of new entrepreneurs in the knowledge sector. Tax reforms have also created opportunities in the corporate market. There has been a recent shift away from traditional agricultural and trade practices towards knowledge-intensive sectors, highlighting the importance of entrepreneurship. India now encompasses four levels of entrepreneurship: agricultural, trading, traditional, and emerging sectors.

Level 1 companies have experienced rapid growth due to liberalization efforts and initiatives to improve access to finance for entrepreneurs. Institutional support for 'techno-preneurs' has also played a role in this growth. The package industry has made significant progress over the past decade, contributing to India's global recognition.

The establishment of premier educational institutions like IITs by Jawaharlal Nehru laid the foundation for this growth. Skilled engineers produced by these institutions gained recognition for their abilities in the USA as well. Investment in laying fiber cables further enhanced connectivity with other countries.

India's IT industry reached a turning point with its preparedness for the Y2K bug, which marked an important milestone moment for its growth trajectory.Tax holidays provided by the Software Technology Parks in India (STPI) have supported the growth of emerging companies

and infrastructure development, leading to the rise of BPO, KPO, and software startups contributing to Level 4 in the diagram above. Incentives for entrepreneurship in India include family background, independence, challenges, ideas, and market opportunities. Each factor poses unique challenges for entrepreneurs during their early years. Family background can both motivate entrepreneurs and create conflicts related to succession planning, compensation and rewards planning, hiring non-family professionals, ownership structure, and wealth preservation. Leadership styles vary across generations due to changes in organizational structure, focus on competence, and shifts in sectors. The term "Consecutive Entrepreneur" is often associated with family businesses where 2nd or 3rd generation entrepreneurs either continue the same business or sell it to start a completely different venture. Ajay Piramal exemplifies this trend by transitioning from labor-intensive fabrics to knowledge-intensive pharmaceuticals. The long-term impact of household concerns on the economy is significant as it contributes to creating wealth for future generations.Idea-driven entrepreneurs face initial challenges in securing support for their ventures. In India, they often need to personally approach venture capitalists or angel investors to convince them of the potential of their ideas. Moreover, innovation in India tends to be relatively low, with most new ventures focusing on incremental changes or imitating successful models.

It is worth noting that renowned startup hubs like Silicon Valley have also experienced similar stages of development. During the approximate timeframe of 1965-1975, Silicon Valley had "Me Too" entrepreneurs who copied successful ideas from elsewhere and faced more failures than successes. However, the following decade marked a period of success for entrepreneurs as consecutive individuals thrived.

In India, the infrastructure and ecosystem have developed over time, resulting in an increase in

lawyers, venture capitalists, and recruiters. Attracting talented employees to startups has also become easier. This growth resembles the state of Silicon Valley from 1975 to 1985.

By its third decade, India's ecosystem is fully established and generates successful companies—similar to what Silicon Valley has achieved since the mid-80s.Ajit Nagral, a first-generation entrepreneur, faced challenges with funding and Indian bureaucracy upon returning to India after 15 years of successful entrepreneurship in the USA. He emphasizes the importance of navigating the system when running a business. In comparison, he describes the US entrepreneurial ecosystem as having access to capital, well-defined investment regulations, basic infrastructure availability, talent pool accessibility, and acceptance of failure. Within India, socio-cultural factors play a significant role in promoting entrepreneurship. The Indian cultural fabric includes various elements that guide and support entrepreneurship. For instance, community banks and credit networks provide recognition facilities and profit-sharing schemes particularly prevalent among communities like the Marwaris to ensure readily available liquidity sources. Traditional networks also offer support for infrastructure through access to storage facilities and remittance services along trade routes. In certain cases, villagers seek success by traveling to larger cities where they find accommodation within the business community for support. Notably, specific locations like Mumbai and Kolkata have witnessed the development of futures markets due to the presence of entrepreneurial communities.
The migration of communities to commercial centers like ports and trading hubs has promoted entrepreneurship in those areas. However, women face challenges when entering the male-dominated field of entrepreneurship and must prove their dependability and resilience. Indian women are motivated to start businesses for two reasons: achieving independence in a male-dominated society, and economic difficulties. Entrepreneurship in India

empowers many women by providing flexibility, and their multitasking abilities contribute to their success.

In terms of social progress, the South region of India has made gradual strides in eradicating the caste system since independence. Government initiatives aim to eliminate untouchability and provide reserved seats for historically disadvantaged lower castes. Subsidies have also been offered to improve their standard of living. While these efforts have had limited impact, they have helped shift mindsets and break down barriers. The South region prioritizes economic development and education as pathways to prosperity, leading to a higher number of successful entrepreneurs emerging from smaller towns and villages compared to the North.India offers great opportunities for entrepreneurs, but they also face numerous challenges. One major hurdle is securing funding, as options are limited and banks are risk-averse. Small businesses often rely on personal savings or high-interest debt from money lenders. While friends and personal savings can provide support, formal banking institutions have policy limitations and newer funding mechanisms are not widely available. However, there have been recent developments in micro finance, micro equity, and mutual guarantee associations for small-time entrepreneurs. Informal institutions like sub-castes within the Vaishya community contribute to supporting innovation and entrepreneurship in India. Other institutions such as sarafi, basa system, apprenticeship, and mentoring also play a role in promoting entrepreneurship. Socio-cultural factors pose obstacles to entrepreneurship due to a risk-averse culture that favors secure jobs over venturing into business, even among talented graduates. Family pressure, the caste system, and gender discrimination discourage individuals from taking entrepreneurial risks in India. Additionally, the country's policies and bureaucracy create significant challenges for business growth.In India, starting a business can be a

lengthy 11-step process that takes 35 days. However, closing down a labor-intensive manufacturing business can drag on for years due to legal procedures. These factors greatly limit the potential of entrepreneurs. To encourage more aspiring entrepreneurs, there is a need for improvements in labor and agriculture policies, among others. Additionally, infrastructure poses another major issue for Indian entrepreneurs. The lack of reliable power supply forces them to have their own power generation mechanism. Moreover, inadequate roads, railways, airways, and logistics put additional strain on small-time entrepreneurs with limited resources.

To tackle these challenges and find solutions, it is crucial to identify the key problems faced by entrepreneurs amidst the numerous obstacles they encounter. One such challenge is the prevalent risk-averse mindset in India where securing a job is seen as the ultimate goal rather than pursuing entrepreneurship - even top directors from IIMs opt for industry jobs instead. Lack of support for taking risks within families and non-supportive policies hinder efficiency and innovation. Time is undervalued while bureaucracy and red tape create further obstacles.

The absence of a debt market combined with limited venture capital (VC) and private equity (PE) support exacerbate these challenges alongside dysfunctional government agencies that contribute to them.In India's entrepreneurial ecosystem, there are limited collaboration and mentorship opportunities available. To promote entrepreneurship in the country, it is important to find solutions for these issues. Our analysis suggests several recommendations:

1. Education should establish Business Incubation centers in top management and technical institutes to instill confidence in taking risks.
2. Performance metrics should be changed from high salaries to new venture capitalization and employment rates.
3. Policies should focus on supporting first-generation entrepreneurs and incentivizing entrepreneurship

in less attractive industries.
4. Institutions like SIDBI should be promoted as public placeholders for venture capitalists.
5. Technologies that reduce externalities such as electric cars and solar water heaters should be prioritized.

In order to promote innovation, it is crucial to establish a robust market for Venture Capital (VC) and Private Equity (PE). This market should prioritize funding ideas rather than relationships. Additionally, cluster parks that offer support and resources for Small Scale Industries (SSIs) and Micro, Small, and Medium Enterprises (MSMEs) should also be created.

Moreover, developing a database of information that can assist new ventures while providing consulting and support services is essential. Lastly, advertising success stories and inspiring new entrepreneurs are necessary steps towards fostering innovation.