All things, goods and services, have a demand and supply side. The same holds true for entrepreneurship, albeit somewhat differently. Society needs entrepreneurs to create jobs and new products. They are the ones who have capital to invest or ideas that spur innovation. There is, therefore, “demand” for entrepreneurship, though it isn’t consumed in the manner of pizzas, smartphones, movies or financial services.
The “supply” side is even more complex. Unlike for wheat or real estate, there isn’t a price-based market mechanism that causes the supply of entrepreneurs to increase to match demand. Nor does the notion of oversupply apply to entrepreneurs. In that sense, they are ethereal like god. We want them but don’t seem to know how — never mind the priestly incantations of business gurus who claim they do.
The crisis in the economy today is one of the undersupply of entrepreneurs. Supply has dramatically reduced despite our obvious need for more entrepreneurs. Barring the odd Sachin and Binny Bansal (Flipkart), Kunal Bahl (Snapdeal), Bhavish Aggarwal (Ola) and Naveen Tewari (InMobi), there have been hardly any entrepreneurs of consequence in the past few years. And all of them are confined to a narrow business segment of e-commerce or mobile-enabled services.
Compare this to the first two decades of liberalisation, which saw the rise (and decline) of scores of new capitalists in varied sectors. There were N.R. Narayana Murthy (Infosys), Azim Premji (Wipro), Shiv Nadar (HCL) and B. Ramalinga Raju (Satyam) in IT; Dilip Shanghvi (Sun Pharma) and K. Anji Reddy (Dr Reddy’s Labs) in pharma; Naresh Goyal (Jet Airways) and Rahul Bhatia (IndiGo) in aviation; Uday Kotak (Kotak Mahindra), Rana Kapoor (Yes Bank) and R. Thyagarajan (Shriram Group) in banking/ finance; Subhash Chandra (Zee), Kalanithi Maran (Sun Group) and Raghav Bahl (Network18) in media.
Then, of course, we had Sunil Mittal of Bharti (telecom), Anil Agarwal of Vedanta (metals, mining and oil), Gautam Adani (ports, power and agri-business), Vivek Chaand Sehgal of Motherson Sumi (auto ancillaries), Kishore Biyani of Future Group (retail), Tulsi Tanti of Suzlon (wind power), Virendra Mhaiskar of IRB (roads) and the big “Andhrapreneurs”: G.M. Rao and G.V.K. Reddy (airports, power and roads), L. Rajagopal of Lanco (power and construction), C. Visweswara Rao of Navayuga (ports and construction), and E. Sudhir Reddy of IVRCL (roads and water). Besides, one could point at new entrepreneurs making it big even in “old” industries — Ashok Jiwrajka of Alok Industries (textiles) and Narendra Murkumbi of Shree Renuka Sugars. The promoters of some “old” business houses were no less entrepreneurial — Ratan Tata, Mukesh Ambani, Kumar Mangalam Birla, the Mahindras, the Munjals, the Jindals, the Bajajs and the Ruias. They took their extant businesses to global heights and entered new sectors. That level of entrepreneurial activity is clearly missing in the present decade.
The reason isn’t the obsolescence of the entrepreneurial function resulting from a complete satisfaction of our economic wants, which Joseph Schumpeter had once hypothesised might leave “little motive… to push productive effort still further ahead”. Nor does it reflect the lack of an ecosystem conducive to fostering entrepreneurship. If that were the case, we wouldn’t have produced so many entrepreneurs during the 1990s and 2000s. Creating Silicon Valleys may be a good but not a necessary idea.
The present crisis is a crisis of confidence. During the boom, we had no dearth of businessmen wanting to start new ventures and expand through direct investment or outright acquisition. Equally, there were willing lenders who believed that cash flows from projects would comfortably meet future debt-service obligations. This was essentially confidence, comprising two elements. First, the “animal spirits” of entrepreneurs, which also rubbed off on financiers. Second, the context in which all this was happening. Economic reforms opened up new sectors — from telecom and aviation to infrastructure — for private investment, apart from providing access to global finance and markets, hitherto non-existent. This, along with a new language welcoming of private initiative, led to the unleashing of animal spirits that Keynes famously described as “a spontaneous urge to action”.
Such flourishing of enterprise in response to new contexts has historical precedent. We know how the Great Depression wreaked misery across the industrialised West. Not many, however, know it was also a period that launched the first big wave of Indian industrial entrepreneurship. The import tariff hikes resorted to by the British — purely for revenue considerations, because of the general collapse of trade — induced many a Bania trader-speculator to establish sugar, paper or cement plants for the first time. Ramkrishna Dalmia, Jamnalal Bajaj, Karam Chand Thapar, Gujarmal Modi, the Bajorias and the Singhanias all emerged as industrialists on the back of protective tariff walls erected in the Thirties. The case of sugar is particularly illustrative. As many as 105 new mills came up between 1931-32 and 1936-37, following the imposition of an effective 185 per cent import duty.
If the 1930s marked the emergence of private industrial enterprise in India, the 1990s probably represented its second coming. The decline of entrepreneurship being witnessed is a by-product of the end of the optimism that characterised much of the first two decades of liberalisation. Like many such previous long waves of optimism, this one also ended due to excessive risk-taking and piling up of debt by corporates. Although the banks are the ones left holding the bag, the ultimate victim of their reluctance to lend is enterprise itself. Today, over half of India’s top 500 corporates are overleveraged. The earnings of a third of them are insufficient to service interest on debt. These firms cannot be counted on to take fresh risks.
But the real tragedy is there aren’t too many new ones, either, to replace those on their deathbed. Right now, it is mostly destruction and very little creation; practically everyone has withdrawn into a shell and no one’s investing. While the Flipkarts, Zomatos, Quikrs and BigBaskets may be exceptions, they aren’t enough. The astronomical valuations of many of these firms are proof of vanishing investment opportunities elsewhere in the economy.