Why aren’t there many successful startups in India?

Answer by Anirudh Acharya:

License-quota-permit raj.

When we speak of entrepreneurship it is necessary not to restrict ourselves to the the IT and the web start-ups  The boom in the IT sector has been only for the past 15 years or so. Hence some of the reasons below telling that Internet is not widespread enough is a pretty weak argument.

In the past 65 years India has not been a great destination to do business. Except for a few business families( Tata’s etc..) we never saw anyone making it big in the business world until the economic liberalization of 1991. Probably there are many factors that caused this, but IMO the most important factor was adopting socialism as our growth model.

Nothing has had a greater influence on the growth path this country has taken than the policies adopted by the first government of India. Unfortunately we followed the policy of “Profit is a bad word”.

A common man who wished start an enterprise had to face the herculean task of wading through the red tape of Indian bureaucracy and be ready to bribe the many government officials who would sit as government regulators. This is a huge deterrent to any man for getting into business. With such unnecessary hurdles, the chances of his business failing would also go exponentially high. With such an environment is it any wonder that the entrepreneurial spirit of the nation’s citizens got snubbed?

We followed a policy of centralized planning where the government got involved in all major sectors such as mining, telecom, manufacture, power, petroleum, railways, etc… and did not open it up for the private sector. The real reason for India’s slow growth and lack of entrepreneurial spirit is not  its religious or social attitudes, or the quality of its people, but rather the economic policy that India has adopted.

Two things decide the outcome of a game – the rules of the game, and the players in the game. In India’s case the rules were completely messed up. The system that the first government set up was completely faulty and did not allow people to freely pursue their ambitions.

We have seen plenty of Indians who have excelled as entrepreneurs abroad where trade and business is not hindered by government control. It is not the people or their mindsets, it was the the system they were born into that was at fault. Once put into a different system, success followed.

Related Read:
Milton Friedman on India’s growth model – A Memorandum to the GOI, 1955, Milton Friedman
Milton Friedman and India

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