07 March 2019
Startups can ease India’s job crisis
Source: By Sunil Goyal: Mint
The year 2018 has been a watershed for Indian startups and the venture capital industry. With landmark deals led by the Walmart-Flipkart acquisition, increased investments by the likes of SoftBank and Alibaba and a surge in young professionals wanting to become entrepreneurs, India continues to consolidate its position as the world’s third-largest startup ecosystem. Now there is no looking back. We should now strive to become the worlds largest and the best startup ecosystem. These are not just lofty, feel-good goals but ones that can transform our country at multiple levels.
Consider the conventional role and responsibilities of a venture capitalist (VC). At present, the VC sits at the centre of a universe that has investors at one end and founders at another, managing the funds of the former and guiding the latter to scale so that there are handsome returns for everyone who has skin in the game. While this remains the primary reason for a VC’s existence, there are two more stakeholders in this domain—the government and the average citizen.
As a VC originating from and based in India, I believe we also have a responsibility towards those who govern us and my fellow Indians. As part of a larger ecosystem, VCs have a significant responsibility to facilitate dialogue and cooperation with the government so that policymaking is realistic, enabling, and also creates a conducive framework to encourage the spirit of entrepreneurship in India. We need to ensure that progress is not derailed by sudden jolts such as the “angel tax" and the new e-commerce policy. We need continuity and stability at both the planning and execution stages at the policy level, combined with a robust involvement of the stakeholders in the entire decision-making process.
At another level, VCs owe it to every Indian to show her (or him) a solution to both job creation and wealth generation. Jobs (or the lack of them) are at the top of the minds of our youth. The public sector is a major employer of youth, but its share as a job provider has been shrinking despite government jobs being the preferred option for 80% of rural and urban youth. Several reports indicate that unemployment is almost becoming endemic in this country at 6.1%, as per the officially unannounced National Sample Survey Office (NSSO) data.
The Centre for Monitoring Indian Economy (CMIE), a private think tank, has calculated India’s unemployment rate at 7.38%. Both the NSSO and CMIE have found the jobless rate among the youth is significantly higher. So, with inadequate government jobs and a slow uptick in private sector jobs, it is time entrepreneurship is seen as a serious alternative.
More recently, universal basic income is being flaunted as the panacea to almost all our problems. In an election year, there are bound to be debates on both sides, but every right-thinking person knows that sustainable job creation can happen only when governments do not need to intervene in the funding of entrepreneurship, be it at the microfinance level, a Mudra level, small and medium enterprises (SME) or at the highest end of our tech-enabled businesses. At all levels, the innovation of entrepreneurship thrives only when capital is available widely and in a sustainable manner.
To do this, the capital has to be self-generated. If a worker is earning ₹10,000 a month, someone has to educate that person how saving ₹500 for pension in the provident fund or putting it into mutual funds is not going to create jobs for anyone. Mutual funds do not invest in initial public offerings (IPOs). They participate in listed stocks and go towards secondary purchase of existing shares rather than in IPOs that would make them primary capital providers to entrepreneurs. When savings go into a provident fund, most of it finds its way into government securities and enables it to run expenses and budgets.
My view is that if part of that ₹500, even 5-10%, is allocated towards entrepreneurship or venture capital, it will facilitate the creation of the largest pool of capital for VCs in the next decade. Consider the cascading effect. Today, with only 100-150 VCs in the country, there are local fund managers everyone is targeting and all are going after those startups in tech-enabled businesses or consumer-facing enterprises. With pension funds and provident funds sitting on patient capital, even a smaller allocation towards venture capital can trigger a fresh new wave of entrepreneurship and job creation.
Contrary to popular perception, we are a nation of risk-takers. Even the man who sets up a roadside stall is an entrepreneur at the core. A farmer literally puts in sweat equity with zero funding to take a risk and start cultivating a patch of land. If we become a nation of “micro-funders", there will be no dearth of opportunities. A whole new chain of startups will develop, from manufacturing to agriculture to agri-tech and many more. Domain experts will find it easier to get funded and India will see thousands of startup enterprises across sectors funded by millions of citizens.
Nothing will boost employment more than this one move. Every household will contribute to job creation and wealth generation and India will become a benchmark for other economies to emulate. We will be a nation that sources funds from within, for deployment to our own startups of which many will, in time, grow to a global scale. If every journey begins with a single step, isn’t it time for the VC industry and our policymakers to step up and reset our goals?