From Start-ups to Scale-ups: Why India Needs Global Corporate Champions?

Syllabus: GS3/Economy

Context

• Recently Indian companies like Reliance Industries Ltd. (RIL) and Amul achieved distinct milestones, but not enough to be globally dominant, innovation-driven, and embedded in the highest-margin segments of the global economy.
  • RIL had become the first Indian company to cross $10 billion in profits.
  • Amul had become India’s first FMCG firm to hit a turnover of Rs 1 trillion.

Start-ups in India: Key Features

• According to the Department for Promotion of Industry and Internal Trade (DPIIT), over 1.6 lakh start-ups have been recognised under the Startup India initiative.
• India is the third-largest start-up ecosystem globally, after the US and China.
• India has produced more than 100 unicorns (start-ups valued at over $1 billion).
• Fintech, edtech, e-commerce, SaaS, health-tech and deep-tech sectors have seen rapid growth recently. 
• India lags in producing globally dominant firms, while it has succeeded in creating numerous start-ups.

Global Comparison: India vs. Other Economies

• While India has fallen behind in making dominant global companies, it has excelled in generating many start-ups.

• Unlike the United States and China, Indian firms are dependent on the domestic market. There is low capture of global value through brands, patents, and IP.

Issues with Indian Start-ups

• Problem of Plenty: India has lots of start-ups. But only a few make it to the list of globally competitive firms. There is an excess in terms of number but not scale.
• Orientation towards Domestic Market: There is little market share and pricing power internationally since most firms focus on India’s huge consumer base.
• Absence of firms in high-margin areas: India has very few players in frontier technologies like semiconductors, Artificial Intelligence, manufacturing, and biotech.
  • Even today, global profits keep accruing to firms located elsewhere.
• Low R&D spending: India spends less than 1 percent of its GDP on R&D, much less than other leading economies, hindering innovation.
• Lack of Patient Capital: Deep-tech and research-based ventures require long-term capital. Venture capital in India is more focused on quick returns than on innovations.
• Regulatory and structural issues: The compliance framework’s complexity, factor market fragmentation, inflexibilities in land and labour, and regulatory uncertainty across states add to the costs of scaling businesses.
• Lack of integration into Global Value Chains: While India takes part in Global Value Chains, it is mainly by exporting services and assembling. India does not own the technology, design, and brands.
• Social and policy perception of profits: The Economic Survey of 2017-18 noted India’s movement from “crony socialism to stigmatised capitalism”. It implies that making profits is stigmatised in India.
  • Such perception could be detrimental to investment sentiments and reforms.

Why does India need Scale-ups and not Start-ups?

• Productivity: Big firms spread the fixed costs of R&D, technology, and compliance on a higher volume which reduces the unit costs.
• Innovation: Breakthrough innovation requires patient capital, manpower, risk-taking, and heavy R&D.
  • Large firms have all these capabilities.
• Global Competitiveness: The global giants have strong brands, IP, cross-border supply chain network, and pricing power.
  • All these capabilities help countries capture more value in global transactions.
• Job Creation: Firms with high revenue create direct jobs along with creating supplier eco-systems, logistics infrastructure, and associated industries.
• Fiscal Impact: Highly profitable companies contribute a lot of money through taxes. It helps strengthen the financial strength of the government for social expenditures.
• Strategic & Technological Sovereignty: In a time of technology race between countries, countries require domestic players in important domains like semiconductors, AI, green energy, and defence manufacturing.

Way Forward: Developing Global Giants of India

• Increased R&D Spending: Increase public and private R&D spending to at least 2 percent of GDP.
• Deep-tech Eco-system: Give long-term finance to AI, semiconductor, biotech, and advanced manufacturing ventures.
• Strong Intellectual Property System: Promote patent creation, monetisation, and technology transfer.
• Make it Easy to Scale Up: Reduce regulations and standardise policies of different states to reduce compliance costs.
• Deep Integration into Global Value Chains: From assembly to design, branding and technology control.
• Create a Positive Perception About Enterprises: The profits made due to competition and innovation should be seen as an essential requirement for growth, jobs, and national development.
• Help in Global Expansion: Diplomacy, trade and financial policies of the government should enable Indian firms to gain global market share.

Conclusion

• India has succeeded in developing a dynamic start-up ecosystem. The next phase of development, however, requires globally competitive firms with profit pools, strong brands, and technological supremacy.
• India needs to go beyond the success of unicorns and develop corporate champions which are comparable to Samsung, Apple, or NVIDIA to achieve the goal of Viksit Bharat 2047.

Source: IE