India’s most entrepreneurial post-reforms sectors

Financial services, ITes, telecom and private healthcare top the list because of their proven track record in the past 25 years


Financial services space marked by the non-banking financial corporations (NBFCs) have been critical financial intermediaries in India’s business ecosystem in the last 20 years. Photo: Priyanka Parashar/Mint
Financial services space marked by the non-banking financial corporations (NBFCs) have been critical financial intermediaries in India’s business ecosystem in the last 20 years. Photo: Priyanka Parashar/Mint

The struggles of the current generation of entrepreneurs with their roots in the digital economy contrast sharply with the successes of an earlier generation of businesses that pivoted itself around a single dramatic event, the reforms of 1991. Many of the inhibitors to growth which hamstrung that post-reforms generation don’t exist any longer. And yet, 17 years after Rajesh Jain sold his fledgling dotcom company IndiaWorld Communications, which ran sites such as Samachar.com, Khel.com and Bawarchi.com to Satyam Infoway for the then princely sum of $115 million, the dotcom generation of entrepreneurs is still finding its feet, not sure of where the first dollar of profits will come from.

So which has been the most entrepreneurial sector in India in the last 25 years? Obviously the success of a sector can’t be judged by the fortunes of a single company. What we are looking for is the growth of an entire industry complete with multiple players, vendors, suppliers and a degree of profitability that allows the ship to keep sailing through crests and troughs. 

Such successes are not built on a single idea, no matter how brilliant. Rather they need a succession of ideas based on adaptability and the ability to ride a wave. Judged by that criteria there are four sectors that stand out for their achievements. 

First off is the financial services space marked by the non-banking financial corporations (NBFCs) which have been critical financial intermediaries in India’s business ecosystem in the last 20 years. They filled a massive gap in the credit to small and medium businesses, introducing such services as retail asset backed lending as well as lending against securities. They were the forerunners to today’s private banks like Axis Bank, Kotak Mahindra Bank, Yes Bank most of which are financial services conglomerates offering every manner of product and service. In particular, they reached parts of the economy where the public sector banking system as well as the handful of foreign banks couldn’t or didn’t want to.

Next on the list is the offshore model of the software services industry which was also uniquely Indian. Critically, it leveraged the country’s emerging pool of highly talented software programmers to chart nearly 25 years of sustained, double-digit growth. Its contribution has been huge even beyond the mind boggling numbers. By creating diversified market and geographical segments, it has ensured long term and reasonably de-risked growth. It came into its own in 2000, the breakout year for the industry, when Y2K bug fears across the world, offered Indian companies the opportunity to jump the orbit. Exports of software services shot up from $6.4 billion in 2000-01 to $8.5 billion the very next year.

In number terms it has been easily the most successful sector in India and while there are calls for a fresh look at the market leaders and criticism of their inability to build on the initial backroom model, no other country in the last 25 years is so defined by the success of one single sector as India is. Indeed, the Indian nerd is now part of popular culture worldwide with depictions in television serials ranging from Rajesh Ramayan ‘Raj’ Koothrappali, Ph.D. in Big Bang Theory, to Asok, the brilliant Indian intern in the comic strip Dilbert

Vying for top honours is also the spectacular telecom revolution which has seen India emerge as the country with the second highest number of smart phones in the world. It is worth remembering that tele-density in the country stood at 0.6% in 1989, four years after a much-hailed New Telecom Policy by the government. And that is where it would have languished had it not been for the private sector coupled with the rise of mobile telephony. The net result of these two forces coming together has been an exponential rise in tele-density to 80%. 

But if these three sectors are obvious and widely known entrepreneurial successes of the last 25 years, there is one more unlikely candidate we would have to consider and that is the private healthcare business.

Time was when government dispensaries and hospitals were the only options for those seeking medical help. Even a simple X-ray entailed standing in a long queue and often waiting days if not months.

From diagnostics to surgery, the private sector grew along the entire value chain. Yes their services are expensive, in many cases exorbitant and studies of prescription costs in India have proved that costs were higher for every kind of visit in the private sector. But the point is they have narrowed the availability deficit. According to a Mckinsey report, the private sector created over 70% of the new beds increasing its share of beds between 2002 and 2010.

What’s more, private healthcare companies have operated on sound business principles, with profits as a clear goal. The recent success of IPOs from Indian healthcare providers like Narayana Hrudayalaya, Alkem Laboratories Ltd, Dr. Lal PathLabs offer a lesson to today’s digital entrepreneurs that ultimately they need to test their business hypothesis in the markets rather than in chambers of venture capital and private equity companies.

Of course, if healthcare has been a success, the private education business hasn’t. Similarly while software took off, the hardware industry, despite being the early pace setter, went nowhere. And then there were sectors like auto ancillaries that sparkled briefly before sputtering. 

So if you were betting for 2020, which of the current generation of entrepreneurs would you place your money on? 

Sundeep Khanna is a consulting editor at Mint and oversees the newsroom’s corporate coverage. The Corporate Outsider will look at current issues and trends in the corporate sector every week.

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