Indias Endangered Entrepreneurship Under Modi

7/21/2019 Indias Endangered Entrepreneurship Under Modi

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INDIA’S ENDANGERED ENTREPRENURSHIP

Over the last decade, India has attracted over $84B US in private equity with only a third ofthese investments showing a positive return !s a result, private equity firms" e#posure to Indian

investments has decreased y %&' since ()&&, and in some instances, firms have pulled out ofIndia entirely On the other hand, venture capital firms have set aside $*8B for the purpose ofinvesting into Indian start+ups over the past four years, of which only &)' have eensuccessfully invested into emerging usinesses his clearly shows how a large portion ofinvestment dollars that were once availale to entrepreneurs are now eing allocated to otherinvestments

o address the comined issues of declininginvestor confidence and emigration of India"s talent overseas, the newly elected -rime .inisterof India, /arendra .odi, has proposed a 0Smart 1ities2 initiative Smart 1ities could enefit

India y developing crucial infrastructure3 however, the initiative is poorly+timed and the enefits are largely theoretical If .odi"s goal is to regain investor confidence, solve rain drain,and etter utilie human capital 5 India should instead loo6 to invest in the groundwor6 for asustainale and pro+entrepreneurship ecosystem his will attempt to 7ump start India"s onceimpressive 9- growth rate, which has fallen from &)' in ()&) to *' in ()&%

Smart Cities

! Smart 1ity is a municipality that uses digital technologies to improve uran processes such astransportation, water distriution, waste management, and energy systems iven the rapiduraniation of India, Smart 1ities are seen as a way to drive uran development, 7o creation,

and economic growth while improving living standards he hope is that with increasedopportunities in uran centres and a more innovative and technology+driven environment, India"s rain drain will also slow down he current plan is to uild &)) Smart 1ities at a cost of $&(over () years he overnment of India has so far allocated $&(B in ()&* 5 or a mere fractionof the total cost 5 to start the development of Smart 1ities in the 9elhi+.umai Industrial It issafe to assume that .odi sees this pro7ect as a foreign investment opportunity in India3 however,this seems infeasile given the large sum of inflows which are required to fund the pro7ect andthe slowing private capital mar6et



.odi 7ustifies the feasiility of the Smart 1itiesinitiative ased on the success of similar initiatives such as .alaysia"s Smart 1ity in :uala;umpur In reality, these two pro7ects are quite different .alaysia has ideal conditions for asmart city and its e#pansion y ()() is e#pected to produce a sustainale real 9- growth rateinto ()*) of *8', as well as attract $444B in foreign investments In contrast, India"s economicand demographic profile does not match these ideals 9elhi still has at least ()' of its residentsliving in 0identified2 slums despite having the highest per capita annual income of $%,(*4 5 only&8' of :uala ;umpur"s he Smart 1ities concept wor6s est in service sector dominated areaswhere digital technologies add the most value, e#emplified y :uala ;umpur where their servicesector represents 8%' of their economy 1handigarh and 9elhi are two state+cities where theservice sectors are 8*' and 8(' respectively, however the remainder of India"s (< states

average a service sector sie of only 4=' ! poor fit e#ists for Smart 1ities in most of Indiawhere the ma7ority of states are still heavily focused on agriculture and industrial manufacturing

In order to have a successful Smart 1ityimplementation in 9elhi, a high level of involvement from the government is needed forsuccessful pulic+private partnerships hese efforts have historically failed in India, particularlywith infrastructure >or e#ample, the failure of a pulic+private partnership in the .umai metro pro7ect led to a four year delay in its completion and douled the cost from $%8(. to $?=<.Other infrastructure failures include the new e#presstrain in 9elhi and the new power plant in thewest of India 5 all poor precedents for the success of Smart 1ities

Brain Drain Phenomenon

Brain drain is the movement of highly s6illed and qualified people from one country to another,

often for the purpose of etter wor6ing conditions and higher salaries he overnment of Indiaestimates that there are currently %). highly s6illed people of Indian origin who have left thecountry to wor6 overseas he emigration of computer e#perts to the United States alone resultsin a loss of $(B a year for India his suggests that India has difficulty retaining top talent,stemming from issues with its education system and a lac6 of employment opportunitiesStudents are discouraged y high entrance cutoff grades that near &))' at the est Indian post+secondary schools, and choose to go aroad instead he Indian Institute of .anagement+Bangalore found that students pursuing postsecondary education aroad has increased y (*?'





through two $&B funds from the Small Business !dministration to match private venture capital

invested in high+growth companies

A Step by Step Guie !or Inia

In"enti#i$in% &entorship

Indian high+s6illed immigrants made up ?4' of ()&( US A+&B wor6 visas @etaining these right individuals is the first step in India"s entrepreneurship action plan o achieve this, theIndian government needs to directly reach out to oth successful Indians in India and overseas inorder to strengthen its mentorship networ6 he goal is for mentors to provide new entrepreneurswith guidance and help them networ6 in e#change for a small equity percentage in theircompanies ith proper mentorship, more incuated start+ups can ecome investment grade andattract investment and support from overseas

Pro#iin% Computin% Po'er

India"s I industry is poised for growth, given that in ()&%, ?=' of all new start+ups providedsome form of we service he mar6et sie for outsourcing digital technologies to India forsocial, moility, analytics, and cloud CS.!1D is set to increase y a compound annual growthrate C1!@D of (&' into ()&?, with the total contracts valued at $(8<B he government needsto support entrepreneurs and help them deliver on the large opportunity to meet the demand forI services he concept is called 01loud+Sourcing2 5 a term conceptualied y 1anadiancompany 1yera 5 offering )*B of @apid !ccess 1loud in order to enale 1algary start+upsfree cloud computing resources 1loud infrastructure stands as one of the largest costs for a we

service company >or perspective, a simple &) user networ6 could cost etween $*,))) and$&(,))) annually in the US he data centre strategy is to reduce the amount new companiesneed to gather funding, validate ideas, and create prototypes By lowering the arriers to entry inI, more entrepreneurs can test their ideas, ultimately increasing the numer of successful start+ups ! capital udget was developed to determine the cost of developing a data centre to meet therequirements of new tech companies over the ne#t ten years he numer of tech startups is pro7ected to grow in India y (*' annually >or the first five years of the pro7ect, $4*. isrequired to construct the data center with total maintenance costs of $?<. 1alculating a present



value of the &) year pro7ect, India will invest $4?*. of the $&(B earmar6ed for the Smart 1itiesinitiative in a central data center to house data for start+ups, completely free

Bui(in% In"ubators

Incuators help start+ups survive the early stages of development when they are most vulnerale! great e#ample of a successful incuator program is a recent ongoing initiative spearheaded inIndia y /!SS1O., called &),))) Start+ups he most recent session too6 =,))) applicants and&?' were deemed investment grade ith support from oogle, !maon and .icrosoft, thisincuator in Bangalore supported a cohort of &*) companies and provided them with $(*,)))each in accelerator support, mentorship and angel funding he $<%*. alance of the Smart1ities udget should fund pro7ects of this nature and other incuators for a variety of industries!ssuming a conservative per start+up cost of $%),))) similar to the &),))) Start+ups program,over (4,))) grants could e awarded 1onsidering India"s current usiness success rate of &)',(,4)) impactful usinesses can e started !s more new companies wor6 with incuators, thesuccess rate could easily doule

Increasing the effectiveness of entrepreneurship is important for India"s socio+economicdevelopment In ()&(, Endeavor reported that the average high+impact entrepreneur generates %)more 7os than the average comparale company Investing in entrepreneurs will havetremendous economic impact for India he government can add hundreds of thousands of new 7os in high growth industries

The )ey to Inia’s *on%+Term Su""ess

By developing a mentorship networ6, providing free data solutions to start+ups, and uildingmore successful incuators programs, India has the potential to sustainaly grow its economy In

doing so, India can once again produce investment grade start+ups and attract venture capitalfunding sources his will create a new and e#citing mar6et for foreign direct investment inIndia Instead of investing in an overly amitious Smart 1ities initiative that is poorly timed andhighly ris6y, .odi"s priority should e to improve the e#isting entrepreneurship ecosystem andraise the living standards of the nation as a whole

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Indias Endangered Entrepreneurship Under Modi