Brave New World Of Indian Startups

Posted in Entrepreneurship & Startups Articles, Total Reads: 996
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There is a new global profession in vogue among just-graduates: Entrepreneurship. It was always so to some extent. But in recent years, many structural changes in the economy has made entrepreneurship much more attractive by lowering the entry-barriers to business: access to capital has become lot easier due to deepening of financial markets and rise of new trends like venture- capitalism, high cross border capital flows etc.; internet penetration has opened up new ways to reach and broaden one’s customer base; internet also democratizes the market space because unlike physical infrastructure, digital one is not prohibitively expensive for new entrants. Add to these the spirit of risk-taking: welcome to the ‘Brave New World’ of start-ups.

India too has joined the global start-up party of late. Recently NASSCOM report on start-up eco systems around the world ranked India third only after USA and China. There is a lot happening in start-up world of India. On almost every good that people access, from high end products like cellphones and jewelry to mundane things like books and vegetables, start-ups are altering the traditional way of how things worked. And they are doing it at a pace dizzyingly fast for rest of the world to keep up with them.



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Recently held strikes by retail drugstore grouping and taxi-workers in Mumbai are cases in point; similarly state regulatory system is also struggling to grasp the nuances of this profound change in economy- policy framework for companies like Uber, taxation of e-commerce etc. are areas where state is little bit at sea. This dizzying pace is only going to enhance as internet penetration in India goes up from current meager level of 15% of its population. But underlying this surface flux are some fundamental and hard questions. What future does this profound change pose for India and its economy? Is our state regulation nimble enough to smoothly usher in this change or will our state fumble in the face of complexity? Will this change lead to an inclusive growth or further concentrate wealth in the society? How are existing institutions – retail shops, trade unions, and traditional industries etc. – going to respond to this change? Are these innovative but shaky start-up firms capable of maturing into robust and enduring big firms? These questions cannot be answered speculatively. The answers will depend upon a lot of factors examined briefly in next part of the essay.


Need of a 21st century regulatory system-

The biggest factor that will impinge on future of this 21st century Indian economy is this: whether we can build a 21st century state regulatory system. In a range of areas, state will have to come to terms with new complexities. Take finance first. Almost none of the poster children of Indian start-up eco-system- Flipkart, Ola, Paytm to name a few – are listed on public stock exchanges. One argument is that they are still small and will eventually do when they scale up. But as it turns out their business model is entirely in contradiction with what SEBI mandates for a publically listed firm. For instance, SEBI prescribes a certain ceiling on spending on advertisement by public firms. And that limit is breached by way off margin by these new firms for their business model is advertisement intensive. To take another example, SEBI mandates that a firm attain consistent profit for some quarters before listing. But firms like Flipkart are nowhere close to making profit as yet; their model is to drive out competitors first, consolidate their market space and then register huge profits. This too does not fit with SEBI norms. Although SEBI has recently released a draft for listing norms on crowd-sourcing platforms for start-ups, it cannot be accessed by retail investors with no history of venture capitalism. So there is a risk that some of our promising start-ups may fail due to want of capital to scale up. On the other hand, exposing retail investors to such risky business models without minimal safeguards can lead to financial instability. The way our regulatory system handles this delicate balance will matter a lot for our start-up world.


Second, take issue of data protection and privacy. Almost every aspect of our life is getting digitized- financial transactions, personal interactions, business deals etc. The amount of online data is rising exponentially. This data has huge potential for Big data business firms- tailor made products, personalized advertising, product designing etc. But there are parallel risks associated: Phishing, privacy breach, spying etc. Though complex, even all this could be handled by a sophisticated state. But what makes it tricky is the fact that most of the servers that store these data are located overseas, particularly in USA. So our government cannot work alone. It will have to work with other stakeholders- governments, civil society, technical firms-, through multilateral institutions like ICANN to establish an international normative and legal framework that can ensure consumer safety. Otherwise our start-ups will always be vulnerable to data theft.


One can run similar story through a range other areas where we will need an entirely new regulatory imagination: labour laws, taxation, consumer rights etc.


One final point is about managing the political economy of this profound change. As recently held strikes demonstrate there is going to be a huge backlash against the unsettling that start-ups produce. There are two extreme scenarios. One if this change thrusts itself abruptly then many people will lose their established businesses. On the other extreme if in our bid to protect settled economic structures we hinder the start-ups then we will lose out on the efficiency, prosperity and innovation that they can unleash. So we will have to find out ways to make this change smooth. For instance, access to small capital through MUDRA bank can enable taxi-drivers to invest in new car and be a part of app-based taxi start-ups; Platforms like Snapdeal can provide small household manufacturers to reach out to pan- Indian customer base. Retraining into new skills can enable people to move from settled ways to new demands of the time. Basic funding and mentorship can enable people to start-up their own small innovative firms; government has launched National Innovation Fund for such inclusive growth. It is very important to ensure that this new economic momentum does not lose its social legitimacy. Otherwise we will lose more by social unrest than what we gain by economic progress.


CONCLUSION

It is exciting times for Indian economy; the sheer range and depth of change is truly extraordinary and unprecedented in modern Indian history. But all that glitters is not gold; it takes prolonged fire to refine an ore into pure gold. In our case, we will need hard labour of designing nuanced policies and managing the political economy of change


This article has been authored by Saurabh Goyal from IIM Raipur


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