Entrepreneurship: A necessity for India

Indian population stands strong at 1.2 billion people. Thus, India is ~1/7^th of current world population. By 2030, India will surpass China to reach 1.5 billion people. Thomas Friedman, in his book The World is Flat, mentions that by 2030 India will produce the maximum number of technical graduates in the world. How is India poised to handle this quantum of educated population? In this blog, I share my views on this topic. I encourage the readers to post their views below.

Food security of the billions of Indians has often been highlighted as one of the most important issues facing the country. However, herein, I propose that the economic empowerment of the billions of people is more important than food security. You might wonder why wonder, how economic empowerment can be more important than food security? To understand this, we should look what is the meaning of economic empowerment. One good definition that I read is “economic empowerment is the capacity to bring about economic change for oneself, including a fair income and a raised standard of living,which are crucial for diminishing inequality and poverty.” Thus, economic empowerment will allow people an equitable access to food as well as other necessities of life. The burning question for me is: Is India equipped to economically empower the billions of educated (and uneducated) people? In the following paragraphs, I discuss this question.

An average size of Indian family is of 4 persons. Thus, for a population of 1.2 billion, ~300 million families dwell in India. Usually, 1-2 members/family are working in India. Thus, India employs 300-600 million people/year. On the other hand, the unemployment rate in India averages to ~ 4% for past 10 years. Thus, ~50 million people of Indian population are still unemployed. To put things in perspective, 50 million is the population of Burma and South Korea respectively or the combined population of Hungary, Tunisia, Czech Republic, Belarus and Belgium!!

                                                           (Unemployment Rate in India: Data from World Bank)

Enrico Moretti in his book, The Geography of Jobs, has shown that each job in the US creates 5 jobs by the multiplier effect (this effect is clustered in areas where new ventures are concentrated). The magnitude of multiplier effect varies with country e.g. 5 for US, 3 for Sweden and negative for Italy. For India, NASSCOM in 2007, calculated the multiplier effect to be 4. With improvement in Indian economy in past few years, we could assume 5 as the multiplier effect for 2015. With a multiplier effect of 5 and a requirement of ~50 million jobs, we can back calculate the number of jobs required to zero the ~4% unemployment rate. A quick math will tell us that ~100,000 jobs could create 50 million jobs by multiplier effect (e.g. 100,000*5 = 500,000 more jobs*5 =…..=50 million jobs).

So the big question is how can we create 100,000 jobs? The only answer is Entrepreneurship. Let us analyze this further. If we assume, each startup employs ~10 people, thus 10,000 startups are required to create the 100,000 jobs that in turn are necessary to trigger the ~50 million employment generation by the multiplier effect. But it is known that <10% of startups succeed, thus 100K startups need to be started, out of which 10K or (~10%) will survive. 

But is India ready to launch 100,00 startups? Not yet. In my next blog, I will discuss some of the challenges faced by Indian startups.