By Ishita Misra
Authoritarian states are usually expected to have policies that not only give public enterprises an advantage over private ones but also discourage the development of big private companies. However, considering the boom of private ventures in the past few years, China completely shatters the image of a typical authoritarian state when it comes to private enterprises and entrepreneurship. On the other hand, India, a thriving democracy with an open economy, is lagging behind China regarding the number of entrepreneurs in the country opening their businesses. Fortunately, as the Indian government pushes for rapidly digitising the economy, India might be able to catch up with its neighbour sooner rather than later.
The unappealing choice
One of the key reasons that India does not produce as many entrepreneurs is the lack of appeal that it has in India as compared to other developing economies including Brazil, China and South Africa. Only 39.3 percent of the Indian population thinks that entrepreneurship is a good career choice according to a survey by Global Entrepreneurship Monitor (GEM), a global consortium researching on entrepreneurial activities. In comparison, 77.7 percent of the respondents in Brazil think of entrepreneurship as a good choice, followed by 73.8 in South Africa and 65.9 in China.
As per the GEM National Experts Survey 2015, there exist major constraints that account for the lack of enthusiasm regarding entrepreneurship among Indians and the lack of entrepreneurial development in India. These include lack of funds for incentivising people to start off on their own, stringent government regulation and complex tax structures, inadequate entrepreneurial education at primary and secondary school levels, and lastly, the culture and social norms that deter people from taking up such an independent career.
Lessons in entrepreneurship from the big neighbour
With the rise of private ventures like Tencent, Alibaba, Baidu and Xiaomi, which went from earning a revenue of zero to billions in just a few years, China is producing entrepreneurs higher in number and value, than India. Some attributes of the Chinese economy which contributed to this boom in entrepreneurship are low wages, subsidies, institutional reforms, foreign investment and a favourable demographic. However, the chief reason behind the recent explosion of private enterprises is the rapid expansion and use of internet services which has pushed a majority of its people into the formal economy.
Edward Tse coined an acronym for the factors that led to the entrepreneurial explosion in China in his book, ‘China’s Disruptors’. The acronym, SOOT, stands for scale, openness, official support and technology that work together in the Chinese economy. Coming to the digitisation of the economy, a study by Pew Research Centre tracked internet use in India and China from 2013 to 2016 to show the impact of digitisation on the number of entrepreneurs in the country. Defining an internet user as the one who used the internet at least occasionally or owned a smartphone, the study found that China had 71 percent internet users, while the figure in India was as low as 21.
The sheer size of China’s digital economy is not just a consequence of the number of consumers and investors, but also government support. An example of government policy that supports digitisation of the economy by promoting the integration of digital technologies into various economic sectors, is the ‘Internet Plus’ policy started by Chinese Premier, Li Keqiang. Consequently, China’s digital economy increased to $3.35 trillion in 2016 and continued to further grow to 18.9 percent. Furthermore, the digital economy of China contributed 69.9 percent to the GDP and made it easier for Chinese companies to achieve economies of scale by increasing the number of people formally involved in the economy.
India attempts to catch up
The Managing Director of McKinsey & Co, Dominic Barton, claims that China produces more entrepreneurs with bigger businesses because of the large economic base that the entrepreneurs have. In other words, more people in China participate formally in the economy than in India, providing the Chinese entrepreneurs with a greater consumer demand. He further mentioned in an interview, “Companies such as Tencent came out of nowhere. What they have done using data analytics is that they are now serving 300 million people, so the participation rate of Chinese in their economy is higher.” He also said that China just has had a head start over India. Even though China has impoverished regions, poverty there is not as extreme as it is in India. Unlike in India, even the relatively poorer Chinese areas have some basic characters of a formal economy. However, as more and more Indians get inducted formally into the system, the number of entrepreneurs produced in India can match those in China.
In an attempt to digitise India’s economy and integrate more people into the formal economy, the government had demonetised Rs. 500 and Rs. 1000 banknotes in November 2016. The move led to a disruption of economic activity in the months that followed but undoubtedly led to an increased formalisation of the economy. It pulled a large number of people into the mainstream economy. Furthermore, India’s Minister of Information Technology, Ravi Shankar Prasad, recently said that the government is trying to expand the Indian digital economy to $1 trillion in the next five to seven years. As a result of the expansion, the bigger consumer base will not only make it easier for Indian entrepreneurs to scale up their companies fast but will also entice new entrepreneurs to try out unique ideas.
Featured Image Source: TechYizu on VisualHunt / CC BY
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