Economic Survey 2020: Creation Of New Firms On The Rise
A worker cuts a piece of tanned leather with a razor blade in Jalandhar, Punjab, India. (Photographer: Dhiraj Singh/Bloomberg)

Economic Survey 2020: Creation Of New Firms On The Rise

The government’s Economic Survey for 2019-20 claims a big boost to bottom-of-the-pyramid entrepreneurship in recent years. It says, referencing World Bank data on entrepreneurship, that India ranks third in the number of new firms created.

The survey also claims that new firm creation has risen dramatically since 2014—at a compounded annual growth rate of 12.2 percent between 2014 and 2018 versus 3.8 percent from 2006-2014.

“As a result, from about 70,000 new firms created in 2014, the number has grown by about 80 percent to about 1,24,000 new firms in 2018,” the survey states.

Entrepreneurial activity in India’s formal sector, the survey notes, has historically been low. It says between 2006 and 2016, the median number of new firms registered per year per 1,000 workers was 0.11 versus an entrepreneurial intensity of 11.84 in the U.K. and 11.81 in the U.S.

Economic Survey 2020: Creation Of New Firms On The Rise

Based on data on new firm creation as per the Ministry of Corporate Affairs (MCA)-21 database, the survey finds that:

  • New firm creation in services is significantly higher than that in manufacturing, infrastructure or agriculture.
  • The creation of new firms is dispersed across India and is not restricted to just a few cities.

It also notes, expectedly, that literacy and education in the district foster local entrepreneurship significantly.

For instance, the eastern part of India has the lowest literacy rate of about 59.6 percent, according to the census of 2011. This is also the region in which new firm formation is the lowest. In fact, the impact of literacy on entrepreneurship is most pronounced when it is above 70 percent.   
Economic Survey 2019-2020

Analysing district-wise data on new firms the survey finds that...

1. States in the highest quintile of relative entrepreneurial activity in the agriculture sector are Manipur, Meghalaya, Madhya Pradesh, Assam, Tripura and Odisha.

  • In the Northeast, these firms are more likely to be in the food business such as organic produce farms and tea plantations.
  • A majority of the firms in Madhya Pradesh and Odisha are farmer producer companies, designed as hybrids between cooperative societies and private limited companies

2. Entrepreneurial activity in the manufacturing sector is highest in Gujarat, Meghalaya, Puducherry, Punjab and Rajasthan.

  • In Gujarat, the most entrepreneurially active districts are Surendranagar, Rajkot, Bhavnagar and Surat, focused on textiles, chemicals, metals, plastics, and pharmaceuticals manufacturing.
  • Three of these states—Gujarat, Punjab and Rajasthan—have been recognised for more flexible labour laws.
  • Whereas states classified in Economic Survey 2020 as having inflexible labour laws—West Bengal, Assam, Jharkhand, Kerala and Bihar—were in the lowest quintiles of entrepreneurial activity.

3. Entrepreneurial activity in the services sector is highest in Delhi, Mizoram, Uttar Pradesh, Kerala, Andaman and Nicobar, and Haryana.

  • New firms span diverse industries such as trading, financial services, tourism and hospitality services, retailing, and even religious leagues and missions.

4. Entrepreneurial activity in the infrastructure sector is highest in the states of Jharkand, Arunachal Pradesh, Himachal Pradesh, Mizoram, Jammu and Kashmir and Bihar.

Economic Survey 2020: Related Coverage

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