Tuesday, May 07, 2013

Creating Entrepreneurial Eco-Systems in Indian Cities

We spent most of yesterday meeting Entrepreneurs in Bhubaneswar and then discussing Enterprise training in the top management institution in the City. It sure seemed that the 'Pensioners' Paradise', as Bhubaneswar was previously called, is suddenly abuzz with entrepreneurial activities. Some of the entrepreneurs we met yesterday came back to the city, after having spent years abroad or elsewhere in India, to set up their entrepreneurial ventures, which is indeed a good sign. There are successful medium scale enterprises growing at a fast clip, and plenty of evidence that, at least in among the companies we met, there is healthy collaboration and culture of sharing. These are not world-leading companies yet, and indeed, I observed that most of them are decidedly low-tech, but there may be lessons from Bhubaneswar other Indian cities need to learn, and quickly.

India is unlikely to sustain economic growth, and indeed its GDP will need to grow at least by 8% per year, if it is to emerge out of poverty within a decade. Many things need to be fixed for the country to achieve this. The daily circus on Indian television makes some of it obvious: The country needs a government. Anyone travelling around India notices the poor state of its infrastructure - bumpy roads, overcrowded and unclean trains, chaotic railway stations and inconsistent electric supply among others - and massive investment is needed to turn around the infrastructure. Then, there is health care and education, mostly unfit for purpose because of the lack of work ethic and skilled people, which is a massive problem that needs to be fixed before the country could stand up and be counted. And, then there is the question of credit - India is still the country where consumer credit is plentiful but Investment capital is relatively sparse - with interest rates hovering in mid-teens. All these, and more, need to be fixed if India's growth has to be sustainable.

However, just fixing these problems, which are hygiene factors that just need to be there, won't get the country onto the fast track of growth. While the wheels need to roll, it still needs an engine, and traditional engines of India's growth are too rusty to move it forward. Indeed, in the Sixty years since Independence, the Indian government has defined the development agenda: It cannot, any longer, as the perilous state of public finances and complete breakdown of governance limit what role it can play in the future. Then, there are the large pan-Indian businesses, respected Business Houses such as Tata and Birlas, as well as the relative new comers such as GVK, GMR, Wipro, DLF and the like, which has enjoyed a sort of Renaissance since the liberalisation of the economy in the 1990s and have done very well in the shining years pre-recession. However, tightening of global credit, and dare I say the relative cooling of global investor sentiments towards BRIC in general but India in particular, have put brakes on what these companies can do: Besides, some of these companies themselves have cooled towards India's development prospects and started putting their money in overseas assets. Besides, as it is becoming more and more evident, India's growth will have to come by solving India's problems in a context-sensitive way, and not by applying age-old formats and formula: Neither the government, which is inefficient, nor the business groups, which are usually conservative, are going to do this.

The Indian problem will need an Indian solution, and the best chances of that coming about are from the entrepreneurs that we met yesterday. Indeed, there are myths around entrepreneurship and many of the starry-eyed entrepreneurs will fail. Many will stagnate at their level of irrelevance. But the collective impact of such efforts is the point, not the dollar value. England became successful and ruled the world because its entrepreneurial and innovative spirit, to solve very English problems such as how to find Red Dye to manufacture military uniforms for Red Coats, spawned organisations such as the Royal Society of Arts (RSA), the model of the entrepreneurial ecosystem that we talk about today. What's refreshing to see in Bhubaneswar is that these entrepreneurs are trying to build their own ecosystem rather than being dependent on some government agency and government handouts. Surely, there is little point waiting for a 'Ministry for Entrepreneurship' to happen. Far more impactful will be the work of people like Professor Shridhar Dash, who we met at XIMB, and who, in his modest way, pursuing his goal of creating '10 successful start-ups'. It is inspiring to hear about the three he and his colleagues helped get started: All decidedly low-tech, in Milk production, Rural Tourism and Energy, but all with idealism, innovativeness and focused on real problems which no one is trying to solve. 

Can the governments do anything to help build the entrepreneurial ecosystem? Government interventions, such as funding etc, do more harm than good, as they subvert the deeply meritocratic dynamics of entrepreneurship into a perks-and-privilege system where, more often than not, the inefficient thrive. So, indeed, the Government can do by getting mostly out of the way. However, there are still things for government to do. For example, the government can indeed invest in education and research, the activities which have long term impact and often fall outside the entrepreneurial time horizons. Further, and this is particularly true for India, the governments should revisit their approach to big businesses, which are often the problem than the solution. The control of advertising standards, hygiene, health and safety, institutions which control monopoly and unfair trading help build entrepreneurial ecosystem by holding the rapacious big businesses in check and creating space for solutions which solve real problems. In India, we are seeing the rise of big 'Group of Companies', family-owned conglomerates which often work together in anti-competitive and inefficient way, and devalue meritocracy and professionalism. This is the area where government's attention needs to turn into: There needs to be a level playing field for entrepreneurs. It is difficult to do, but this is the least any government could do if they want to get India moving again.


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