Turning back a few pages in history to about 300 years back, India accounted for a fourth of the world’s GDP. By 1947, colonisation and missing the industrial revolution bandwagon had shrunk its share to about 2%. Fast forward to the early 1990s, decades of closed economic policies had reduced the figure to a paltry 0.2%. From thereon, liberalisation over the past couple of decades has helped India re-emerge and brought it back firmly on its growth trajectory. India is now the third largest economy in the world accounting for almost 6% of world GDP.

An insightful report by the Planning Commission Committee on Angel Investment & Early Stage Venture Capital titled “Creating a Vibrant Entrepreneurial Ecosystem in India” released in mid-2012 notes that the resurgence is however, far from complete. India needs to create 140 million jobs over the next decade to generate adequate employment opportunities for its young population. Track records of existing private and public sector companies and government employment suggest that these institutions will not be capable of such massive employment generation. Accelerating entrepreneurship and new business creation will be crucial for achieving this end. It is therefore imperative to build and nurture an enabling entrepreneurial ecosystem where ventures can succeed and grow. To this effect, particular thrust needs to be provided to encourage entrepreneurs create innovative solutions for the host of social and environmental challenges the country faces with respect to education, health, energy, water & sanitation, waste management and financial inclusion. The Committee recommends creation of a National Entrepreneurship Mission to bring together diverse stakeholders in aggressively promoting entrepreneurship across the country, arrive at recommendations based on global best practices and construct appropriate measurements and systems to track and benchmark the country’s performance on entrepreneurship related parameters.

The current environment with respect to entrepreneurship is far from being an enabling one. It is rather one characterised by gaps and shortcomings that rein in and stifle entrepreneurial enthusiasm and activities. Regulatory frameworks are restrictive and processes are time consuming, burdening aspiring ventures with high costs and frustratingly long waits. Banks and financial institutions avoid lending to them due to restrictive norms. Existing companies limit their engagement with them. The educational framework promotes careerism over entrepreneurship. To top it all, lack over collaboration amongst stakeholders creates further obstacles. The Result:  compared to global benchmarks, India ranks lowly on parameters of entrepreneurship (74^th out of 79 countries), innovation (62^nd out of 122 countries) and ease of doing business (132^nd out of 183 countries).

To build the ecosystem, the report stresses the need to create favourable conditions for attracting significantly more early stage funding from angel investors, venture capitals and impact investors. In order to create the required 10 – 15 million jobs per year, the Committee projects 2500 high growth enterprises will have to be created over the next decade. Factoring in the probability of success, this implies 10,000 start-ups will need to be established entailing a funding requirement of USD 55 billion. Currently, only 150 start-ups are funded per year compared to 60,000 per year in the US.

Existing regulations constrain angel investors making it difficult for them to invest and also make exits. In 2011, India attracted only USD 20 million of angel investment compared to USD 390 million raked in by Canada. Angel investments account for only 7% of early stage investing in India compared to 75% in the US. The situation is equally depressing in case of venture capital investing where annual investments are only about USD 240 million in India compared to USD6.3 billion in the US and USD 700 million in China. Furthermore, 90% of these funds come from outside India rather than from domestic investors. Impact investment which aims at generating both social and financial returns is also crucial for India to counter its myriad social challenges in the entrepreneurial way. In 2011, USD 80 million of such investment was made in India. This number needs to grow manifold to support ventures aiming to cater to the country’s 900 million-strong Base of the Pyramid (BOP) population. Apart from the roadblocks mentioned earlier, low availability of quality and scalable models is also currently limiting such investments.

The Committee presents and discusses five major drivers for creation of an enabling entrepreneurial ecosystem in the country:

1. Catalytic government policy and regulatory framework for facilitating and promoting early stage investments, scaling up venture incubation programs, easing entrepreneurial activity and exits for investors and establishing expeditious processes for closing down businesses
2. Easing of access to equity and debt capital by removing regulatory hurdles that discourage domestic fund raising, establishment of a fund-of-funds by the government to support other early stage venture funds and developing and scaling debt offerings
3. Creation of entrepreneurial hubs through private sector participation in setting up and operating incubators and industry bodies and chambers of commerce driving greater collaboration between established and emerging businesses
4. Creation of a culture and institutions which promote entrepreneurship over careerism by upgrading courses, enhancing linkages between educational institutions and the entrepreneurial ecosystem, promoting innovation and commercialisation and celebrating success stories
5. Establishing adequate and effective collaboration forums like online portals and innovation labs.

With these five pillars in place, the report projects that an enabling ecosystem leading to a wider entrepreneurial base will be created. It will enable India to potentially attract USD 700 million of angel investments and USD 3 billion venture capital investments annually over the next 10 years. These investments will eventually create the required 2,500 high growth enterprises which will generate close to USD 200 billion in revenues annually and significant employment opportunities which India so desperately needs.