New companies are popping up away from old economic hubs | Mint

New companies are popping up away from old economic hubs

The numbers are from the monthly data released by the ministry of corporate affairs, which oversees registrar of companies (ROC) offices across the country. (Photo: AP)
The numbers are from the monthly data released by the ministry of corporate affairs, which oversees registrar of companies (ROC) offices across the country. (Photo: AP)

Summary

  • Twenty-seven states and UTs, which collectively accounted for about half the new companies formed in 2023-24, have increased their national share in the last five years. Traditional hotspots such as Maharashtra, Delhi, Karnataka, and Telangana have lost share, even though they remain at the top.

Close to 110,000 new companies were set up in the first seven months of the financial year. At this pace the number looks set to surpass the record set last year. Several factors are at play, but the big takeaway from a close look at the data is the gains recorded by smaller, traditionally weaker state economies in the incorporation of new companies in recent years.

The top five states still accounted for about half all new companies incorporated during April-October, and the top 10 about 78%. But several others that are not among the dominant economic hotspots are growing rapidly. While Maharashtra, Delhi, Karnataka and Telangana remain among the top six by the number of new companies formed, each has ceded share to other states in the last five years.

Simultaneously, 27 states and union territories, which collectively accounted for about half the new companies formed in 2023-24, increased their individual shares during the period. While most are growing on a significantly smaller economic base, their faster pace of growth points to a geographical broadening and increasing formalisation of the economy.

The numbers are from the monthly data released by the ministry of corporate affairs, which oversees registrar of companies (ROC) offices across the country. In order to form a company, an entity must register with an ROC office, while fulfilling basic regulatory requirements related to capital, personnel and nature of business, among other things. As of October, India had about 1.62 million active companies.

Growth curve

The number of new companies formed has progressively increased this century. Besides entrepreneurship, there are other forces in play nudging private businesses to take up a corporate structure.

The notable policy change was the unified goods and services tax (GST) in 2017. The government is trying to get more informal businesses to pay GST. Businesses can set off the GST they've paid against the GST they need to pay. To do so, they must be registered, principally as a partnership or as a company.

In 2013-14, a total of 50,789 companies were set up. In 2017-18, this increased to 99,233. In 2022-23, 165,402 companies were incorporated, and in the seven months of 2023-24, 108,882 companies were formed. At this rate, 2023-24 on course to surpass the 2022-23 figure.

Minimum capital

A new company doesn’t necessarily translate into greater business activity. Companies are formed for many reasons. At their purest, they are formed to start a business and grow it. Beyond that, companies are also formed to manage the flow of funds and payments, or save taxes.

When a new company is formed, one metric that serves as a statement of intent is the paid-up capital. The minimum amount of capital Indian rules require a company to have is 1 lakh. The greater the paid-up capital, the more the entrepreneur is willing to risk and greater the scale the company is aspiring for.

In the past two years, only 20% of new companies formed had a paid-up capital above the minimum requirement of 1 lakh. This number has dropped. Between 2014-15 and 2017-18, the share ranged from 27% to 37%.

Strength in services

A breakup by sector captures the evolution of India since liberalisation into a services-led economy. According to the corporate affairs ministry data, as of 31 October 2022 (the latest date for which sectoral data is available), about 66% of the roughly 1.5 million active companies were in the services sector, though their share of paid-up capital was much lower, at 43%.

Non-manufacturing industry, which had just 10% of active companies, had a disproportionately high share of the paid-up capital (29%).

However, the manufacturing sector, critical for creating new jobs, accounts for only about 20% of the companies and 25% of the paid-up capital. Its share in new companies has increased from 11-13% during 2015-16 to 2018-19, to 19-21% in the four years since. Where this number goes from here will offer a clue on how India’s manufacturing push is playing out.

www.howindialives.com is a database and search engine for public data

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