Nurturing entrepreneurial mindsets early and creating support infrastructure like incubators can lead to mass entrepreneurship in India and abate the job crisis
Any which way you cut the numbers, India has a serious job crisis. Job creation is a classic “wicked" problem; it is systemic, involves lots of stakeholders, and is interconnected with many other issues, ranging from infrastructure and access to finance to ease of doing business. It defies simple solutions and silver bullets. However, one of the most promising paths forward is “mass entrepreneurship", which is about inspiring and helping millions of job-seekers to become job-creating entrepreneurs. Beyond a catchy slogan, this is a vital, unappreciated and underinvested lever for generating meaningful employment.
In 2015, figures from the labour ministry indicated that India’s workforce is growing by 12 million a year, though the data on jobs created is murky and fiercely debated. However, it is clear that our formal economy is ill equipped to create net new jobs; while many new jobs are being created, nearly as many are also being destroyed by productivity and efficiency gains and automation. This trend will accelerate (it is important to keep the net number in mind). Formalization of the economy through measures like the goods and services tax, though essential, is also resulting in job losses as informal small businesses get replaced by more efficient formal enterprises. Women have been particularly hard hit; their participation in the workforce has dipped from 35% to 26%. These powerful trends mean that India’s job crisis will get rapidly worse unless we find a massive new engine for job creation comparable to IT services 20 years ago.
Our research suggests that entrepreneurship has so far been eclipsed by an obsession with education and skilling. But without jobs to fill, skilling is often a waste of resources and can lead to even greater frustration among youth. Even when it comes to entrepreneurship, the conversation has been captured by either the romanticized notion of self-employed individuals who are driven to entrepreneurship for survival or the glamorous world of urban tech-driven entrepreneurship, focused on building the next unicorn, like Flipkart. Such enterprises are important for the economy but don’t create significant employment. The Nasscom Foundation estimates that India will have over 10,000 start-ups by 2020, supporting around 200,000 workers,
Neither extreme is relevant for job creation. “Mass entrepreneurship" refers to the millions of ordinary local businesses that typically hire five or more people, use local inputs and serve local needs in every community. These range from a beauty salon or a food caterer to a motorbike repair shop or artisan collective. In most thriving economies, they form the backbone of the economy and employment. The past growth experience of the US and the current progress of China have been underpinned by a mass flourishing of local entrepreneurs creating local businesses. But India is lagging behind in the promotion of such businesses, while at the same time facing massive shortages in job creation from other sectors; only 21% of jobs in India are in SMEs (small and medium-sized enterprises), versus 35% globally. This is the big opportunity if we are to meet the needs of a young, fast-growing and aspirational population.
Blessed are the meek
Mass entrepreneurship is not a new idea. According to Nobel laureate Edmund Phelps, author of Mass Flourishing: How Grassroots Innovation Created Jobs, Challenge, And Change, it was the reason why Britain was so successful in harnessing the first industrial revolution (1760-1830) to become the most prosperous nation in the world. It was also why the US was able to use the second industrial revolution (1870-1914) to catapult its way to the top. In both countries, prosperity was not driven by just a few visionary entrepreneurs like Henry Ford or Bill Gates. Rather, prosperity was the result of many innovations small and large, driven by millions of people empowered to develop and market innumerable new products. Even people with few skills and humble means were encouraged to use their minds to solve problems and think of new ways to do things. As more and more people started tinkering, and pioneering entrepreneurs multiplied, they ignited a mass entrepreneurial revolution that resulted in the economies taking off.
As I have written earlier, the evidence that invention and entrepreneurship were not elitist activities in 19th century Britain and early 20th century America is compelling. Richard Arkwright and James Hargreaves, inventors of the water-driven and multi-spool spinning frames, respectively, were both illiterate. Scotsman James Watt, of steam engine fame, was the son of a shipwright. On the other side of the Atlantic, John Fitch, who developed the steamboat, was a farmer, while Isaac Singer of the Singer sewing machines was a barely-schooled tinkerer. Apple founder Steve Jobs was a college drop-out. Formal education is hardly a prerequisite for coming up with powerful and empowering ideas. Virtually everyone can do, start or build useful things if encouraged to do so.
I have also written earlier about how China embraced “mass entrepreneurship" in 2014, inspired by Edmund Phelps. In September, it was reported that 16,000 businesses were being registered on an average day. Seventy per cent of these businesses were responsible for creating employment for 10 million people last year. Even accounting for some exaggeration, this is extraordinary contemporary evidence in support of the power of mass entrepreneurship.
Making it happen in India
While there are many things that could be done to encourage mass entrepreneurship, recent research (by Dalberg & Omidyar Network) has shown two interventions to be particularly effective.
The first is to nurture entrepreneurial mindsets early. Most students cannot imagine entrepreneurship as a career choice. They also lack role models. Family and society dampen aspirations and direct young people to focus on studies and find stable jobs. As a result, there is still a keen desire to get a job, ideally a government job, both of which are in short supply. Global evidence shows that school-based exposure to entrepreneurship is effective in making students want to start their own business one day. The best curricula use a combination of compelling stories, interactions with real entrepreneurs, and hands-on experience in launching a business to help students see themselves as business owners.
Some initiatives are showing promise on a small scale. The Union government has tried to introduce entrepreneurship into the secondary school curriculum but, so far, less than 3% of all Central Board of Secondary Education schools offer it as an elective, owing to a lack of quality content and skilled teachers. The government’s Atal Tinkering Labs initiative funds experimental spaces equipped with science and electronic kits and 3D printers, to encourage students to ideate and even launch a small business. The early evidence is positive, with every business making some profits. Similarly, the Udhyam Learning Foundation encourages students in government schools to form teams, launch and run a business for a few weeks. So far, most teams have succeeded and have returned the loan. Lend-A-Hand India places high school students with local SMEs to give them industry experience and help them see how to be an entrepreneur. There is an opportunity to promote collaboration across these efforts and drive massive scale through government schools.
Second, reduce the risk for first-time entrepreneurs. Becoming an entrepreneur is risky and there are still many barriers to success in India, with individuals often lacking the skills or education to see potential market opportunities. Creating effective incubators/clusters to help young people launch new enterprises has shown success globally and could be replicated. Clusters and incubators can help solve multiple problems. Precious infrastructure, including space, electricity and the internet, can be shared. A community of like-minded people, all trying to succeed as entrepreneurs, provides support and confidence. Access to mentors, finance and government schemes can be facilitated. The government’s network of Rural Self Employment Training Institutes (RSETIs), which are in 587 of 712 districts, has shown some success, having helped 1.3 million youth become self-employed. With the appropriate injection of expertise and a better model, these centres can be transformed into incubators of micro-enterprises. Similarly, Aptech runs 1,300 vocational training centres across India. Early experiments at a couple of centres have shown great potential to convert these into incubators. Similarly, farmer producer organizations and various artisan producer companies have shown good results in improving incomes; with a different mental model and approach, many can become entrepreneurial clusters.
Finally, a motivated collective can catalyse mass entrepreneurship. If applied correctly, mass entrepreneurship is a lever that can make a significant difference to a nation’s prosperity. In some countries like China, Thailand, Germany and the US, it creates as many as 30-40% of jobs while, in India, it contributes merely 11% of jobs. By some estimates, it should be possible to create an entrepreneurial movement with 20 million new entrepreneurs over the next 20 years, and over 110 million jobs.
This cannot be the responsibility of the government alone. To accomplish this, it might be necessary to create a focused autonomous organization, bringing together a consortium of public, private and civil society organizations with a shared mission, funding, the right leadership and governance model. Such an entity can help drive awareness, prototype ideas, highlight promising interventions, and foster collaborations for scale. It can also become a platform that allows everyone with an interest in mass entrepreneurship to plug in and play. Similar mission-driven approaches such as Gavi (Global Alliance for Vaccines) or AGRA (Alliance for a Green Revolution in Africa) have been quite successful globally and must be studied and emulated.
“No army is more powerful than an idea whose time has come," said Victor Hugo. Mass entrepreneurship is an idea whose time has clearly come.
Ravi Venkatesan is a business leader, philanthropist and author of Conquering The Chaos: Win In India, Win Everywhere. He is the chairman of the Bank of Baroda and former chairman of Microsoft India.