Business Incubators: Boost Economic Growth in India

Business Incubators: Boost Economic Growth in India

Historically America has been known to be the center for innovation and entrepreneurship. India on the contrary has been an Agrarian nation till the 1960’s after which it’s markets were opened up encouraging entrepreneurial innovation. But it still has not reached the level of its economically comparative countries like China and Brazil. It is lagging behind in the field of technology and innovation. It is becoming a service-based industry. It has been depending on increase in capital stock and population growth for its increase in economic growth. Also for a while there has been a brain drain occurring in India, where it is losing its budding entrepreneurs, engineers, and scientists to richer nations like America and the UK. To prevent this loss of human capital and increase the factors of productivity like technology and innovation within India, it needs to focus on increasing entrepreneurship, and promoting Business Incubators to encourage the creation of new small businesses can do this.

Brief History of Incubators in India

Starting in the 1950’s the Indian government initiated many programs to leverage the technical talent that existed in India. It established prominent research universities and research institutes, provided tax exemptions to new ventures, and improving financial and capital markets. But still this network of institutions did not promote entrepreneurial growth, most entrepreneurs lack necessary capabilities to manage a business, and financial resources. Incubators movement took off in the 1980’s and was financed by the UN, but lacked government support. This trend has continued since and the incubator movement is not picking up in India. Currently there are about 50 incubators in India, 15 of which are Technology Business Incubators. Which is nothing when compared to other countries like the US (1200), China (400) and South Korea (300).

Human Capital and Brain Drain

India has about 8 scientists and technical personnel per 1000, which is quite low. But if you see the total number of technical personnel, it sums up to 10 million people, which is 10 times greater than most other countries. Thus we can see that India has a lot of human capital that can be tapped by Business Incubators.

But at the same time India loses its top engineers and scientists to foreign companies, as they are able to pay a higher salary to them. The UNDP estimates that India loses $2 billion a year because of the emigration of computer experts to the U.S. This can be reduced if Business Incubators encourage entrepreneurship and small business development, as people will be willing to stay in India if they own their own business.

Comparative Analysis Between Countries

The table below compares the level and type of business incubator’s that exist in Brazil, China, India and USA. Which gives us an idea on the current situation in India and how it can be improved.

	Brazil	China	India	USA
Population	194 million	1,338 million	1,170 million	311 million
No. of Incubators	400	500	50	1200
Strategic Focus	Mixed. Foster entrepreneurship, reduce unemployment, transfer technology	High-tech focus. Foster Entrepreneurship	High-tech focus but also traditional incubators to create ventures and jobs	High-tech focus but also traditional incubators to create ventures and jobs
Incubator Funding	Government, Businesses, Universities	Government	Government	Government, Businesses, Universities
Scale	Small (15-20 firms per incubator)	Big (60 firms per incubator)	Small and Smaller (<10 firms per incubator)	Big (60 firms per incubator), Bigger
Incubator Services	Tangible and (poor) Intangible	Mostly Tangible and (poor) Intangible	Tangible and (poor) Intangible	Tangible and Intangible
Incubator Management	Strong	Poor	Poor	Strong
Role of University	Very Active	Present	Present	Very Active
Institutional Environment	Developing	Weak but Developing	Weak but Developing	Developed
Culture	Risk-Averse	Risk-Averse	Risk-Averse	Risk-Taking

This shows us that compared to its economical peers; India’s Business Incubators Industry is not as well developed. Although it has 10 times the number of technical personnel as most other countries, it has almost 10 times lesser Business incubators. Therefore I feel that the government needs to invest more in these incubators so as to promote entrepreneurship and technical innovation.

Benefits of Business Incubators in India

•        Will reduce the social stigma associated with failure; as Indian culture considers failure more of a social stigma than other countries, Business Incubators will help this as they will guide inexperienced entrepreneurs and reduce their chances of failing.
•        Reduce Brain Drain; Business Incubators will increase the number of opportunities available within India for technical personnel and scientists and will encourage them to take the entrepreneurial path and stay in India
•        Promote Entrepreneurship and Innovation; as mentioned in my older posts, we know that business incubators promote entrepreneurship, which in turn promotes technical innovation.
•        Economic Growth, as explained earlier using the Solow Growth Model, in order for economic growth, capital and population growth are not enough. Business Incubators will help grow technical innovation, which will lead to economic growth.

In conclusion, I would like to say that Business Incubators are a key factor in encouraging economic growth. And if India wants to increase its rate of growth, it cannot solely depend on increase in capital stock and population. It needs to promote technical innovation and productivity, and it can do it by funding more Business Incubators.