Entrepreneurship plays a significant role in economic growth and job creation, but how does it affect the economy? On the surface, people think that entrepreneurs start businesses, and new businesses create jobs, strengthen market competition, and increase productivity. This is one side of the story. The broader picture is that entrepreneurs tend to directly impact the economy through growth, innovation, and capital infusion while indirectly transforming the economy by improving social inclusion, creating large-scale employment, and improving the standard of living.
Accelerating Growth and Innovation
Entrepreneurship can create value for people through the acceleration of new technology and help solve problems that existing products and technology haven’t addressed, improving consumers’ lives. Entrepreneurs through innovation often develop and adopt novel practices that allow businesses to stay in business. Several great ideas have originated from entrepreneurial ventures, enabling them to grow faster than their larger peers. Being more nimble and agile, they can take on higher risks than their established counterparts, allowing them access to new markets at a quicker pace. Some recent examples of this phenomenon of breakthrough innovations from Indian entrepreneurs in the past decade were visible in mobility (Ola), merchant value addition (Paytm/PhonePe), and shopping (Flipkart).
Mobilizing Capital and Wealth Creation
The compounded wealth effect created by entrepreneurs is one of the primary drivers of economic development and progress in the country. By establishing businesses, entrepreneurs can fund their operations with their own money and attract financing through debt and equity capital from local and foreign investors. In the long run, entrepreneurial activities lead to value addition and the creation of wealth for shareholders, leading to a positive impact for all the stakeholders involved in the business. In 2021 alone, Entrepreneurs in India have raised over $42 billion, with 90 companies reaching unicorn status (billion-dollar valuation).
Bolstering National Income and Productivity
MSMEs comprise 55 million businesses in India that provide access to employment for 110 million people. The industry, currently valued at $950 billion (₹7,273,800 Crores), contributes 34% of the GDP and 48% to the country’s exports. Every new addition to the 55 million businesses in India furthers the development of products and services that bolster national income, GDP, and per capita income. These economic developments further the national goals of growth and prosperity.
Increase National Trade
Businesses help promote a country’s exports, which helps improve the country’s foreign exchange balance and help strengthen the local currency. Strong business exports have led to India’s forex reserves to more than double over the last decade (from $294 billion in 2012 to $602 billion in 2022). Furthermore, stabilized revenues from companies exporting their goods and services aid the country during local economic downturns. Expansion into foreign markets also enables companies to access cutting-edge technology and business processes, helping them streamline their business.
Spurring Employment Opportunities
India faces a formidable job challenge as the second-most populous country globally with a growing labour force. Entrepreneurship and small- and medium-sized businesses provide an excellent avenue for job opportunities. Entrepreneurship creates many entry-level jobs that teach unskilled jobseekers skills and help them advance to skilled positions in big industries. Entrepreneurs and SMEs are crucial to national economies because of their ability to create more total jobs than the more established large organizations.
After agriculture, entrepreneurs and SMEs are the second largest employer in India, with 110 million job openings. With accelerated development, the influx of investments, and rapid innovation, most of the jobs created over the next decade should come from these businesses. Furthermore, these businesses have been a lot more resilient in economic downturns or recent times than the larger companies.
Creating an Engine of Inclusivity
Many Entrepreneurs have set up businesses and industrial units in less developed and backward areas to help the growth of local and regional economies. These, in turn, have accelerated the infrastructure improvements such as improved connectivity, access to resources, and other public services in these areas. Thanks to the jobs provided by these new businesses, people’s spending power have increased, which has contributed to the regional economic output. Governments, both at the central and state levels, have further fuelled this initiative by offering SOPS to business people, such as tax concessions, credit from banks, subsidies, and funding at a lower cost of capital. Furthermore, growth from these businesses helps reduce the concentration of economic power among a few, increases decentralization and enables inclusive growth.
Improve Standard of Living
Businesses create offerings that add value to the life of the consumer. In the process, they create employment, provide a source of income for the community, increase the community’s spending power, and help elevate their living standards. It’s not just about job creation but their commitment to elevate and improve their employees quality of life of, bring value to customers, and other stakeholders in the community. For example, adopting automation reduces transportation costs and enables faster deliveries at lower prices.
Entrepreneurs form the backbone of the economy. Through entrepreneurial activities, they introduce new products, production methods, and business strategies to the market, thereby boosting productivity and competition while creating employment. Entrepreneurs are vital to the health of an economy.
(The author Mr.Ratish Pandey, Business & Executive Coach, Ethique Advisory and the views expressed in this article are his own)