How to create jobs for India's unemployed millions
The central challenge in India today is creation of jobs. Every day, an estimated 33,000 citizens join the job market and yet the government is only creating 500 jobs a day, on an average. That's a huge shortfall which does not auger well for the health of the Indian economy's future. Why are jobs not being created in the numbers we need?
There are three prime employment generators in India. Despite sound policies, the government has not been able to achieve much success as its agencies are not efficiently translating its schemes in an effective manner. The private sector is sluggish, while the informal sector, one of the largest employers in the country, is still trying to find its feet in the aftermath of demonetisation. This makes start-ups the new job creators.
Here is an interesting fact: Silicon Valley accelerator Y Combinator witnessed the entry of 18 Indian start-ups for its two batches this year, more than the aggregate of 12 in five years between 2011 and 2016! Now if they are successful, they may prefer to invest elsewhere.
Meanwhile, the ecosystem in India has proved to be less conducive for start-ups. While more than 9,800 tech-based start-ups were incorporated in 2015, the number dropped to 4,630 in 2016, according to data from Bangalore-based start-up research platform. Investors poured in around $2.05 billion into Indian start-ups in 2015; this fell to $1.5 billion in 2016.
So, while Indian start-ups are being recognised on the international stage, at home, the situation is becoming increasingly pessimistic. Clearly, venture capitalists have turned more cautious. Investors have clamped up because they haven't seen positive returns.
One obvious, direct way is that the Centre creates more jobs in the government sector. I am sure very few would agree to this given the previous record within India and the rest of the world.
The second, indirect way is that government creates a good business environment which allows the private sector to grow and create more jobs. This is what most people suggest when they say the government should create more jobs. It is not jobs per se, but the environment that needs an overhaul.
The government's ambitious "Start-Up India" is a laudable policy tailored to develop an ecosystem to promote and nurture entrepreneurship across the country, but like with many projects in our country, there is little evidence of it being efficiently translated on the ground. With venture capitalist funding showing a downtrend, the government needs to nudge banks to finance the Indian start-up ecosystem. There's a general aversion by financial institutions to fund high-risk small businesses.
In 2017, it's not easy for an entrepreneur to get a bank loan. Typically, a loan needs a collateral, and for a young entrepreneur, that is a big problem. Even under the current collateral-free loan scheme for start-ups, only companies funded by venture capitalists or angel investors can apply.
It's even worse for women entrepreneurs. As this article states, "A majority of women entrepreneurs in India cannot access institutional finance for many reasons, including the fact that fewer of them have title rights on property that can be used as collateral."
India has an estimated three million women-owned enterprises that employ more than eight million people and constitute about 10 per cent of all small businesses in the country. Only 27 per cent of them have access to institutional finance.
India now has the third-highest number of start-up incubators and accelerators in the world after China and the US, according to a report by IT industry body National Association of Software and Services Companies (NASSCOM) and Zinnov Consulting.
With 140 incubators and accelerators or ecosystem developers, as we know them, India has inched past Israel, whose count stands at 130. However, the gap with the top two is still yawning - China and the US have more than 2,400 and 1,500 incubators and accelerators, respectively.
But all this amounts to precious little if banks - despite being mandated by the government - are unable to lend due to existing non-performing assets. The government must take a call. Entrepreneurship creates jobs. But start-up entrepreneurs need capital loans to kick-start - the government alone can ensure that banks keep their mandate. It is in its own interest, after all.