India’s approach to job creation needs a fresh perspective, as outdated strategies have not yielded significant results. The failure of small-scale reservations, like in toy manufacturing, is a prime example. While this move allowed China to dominate global manufacturing and create millions of jobs, organized employment in India has stagnated at 32 million since independence. This isn’t due to a lack of entrepreneurial spirit but because of systemic and cultural barriers.
Nobel laureate Edmund Phelps, in his work on economic dynamism, highlights the role of a nation’s “grassroots innovation” in fostering prosperity. According to Phelps, societies that cultivate individual creativity and entrepreneurial drive achieve higher levels of growth and well-being. India’s challenge lies in building an ecosystem that encourages innovation and rewards risk-taking, rather than one that stifles it through bureaucratic hurdles and outdated policies.
Systems that reward innovation over rent-seeking or monopolistic practices encourage growth-driven entrepreneurship. For India to thrive, it needs a supportive ecosystem combining policy reforms and cultural shifts that will boost job creation:
1. Strengthen Law and Order
Entrepreneurship flourishes in stable environments free from violence and uncertainty. Regional unrest or cross-border tensions can derail industries impacting skill development, sourcing of raw material, labor migration and constricting the market for finished goods and services. For instance, strained relations with China have hindered the flow of capital, technology, and talent essential for job creation in manufacturing and related industries. Similarly, reduced trade and engagement with Pakistan is expected to have economic implications that could affect job creation and economic stability. The government’s foremost responsibility is ensuring social peace, which lays the foundation for economic growth.
2. Reform Regulatory Policies
India’s “prohibited until permitted” regulatory approach hinders innovation and favors established players. Entrepreneurs with groundbreaking ideas face undue challenges due to bureaucratic red tape. Policies must be transparent, consistently applied, and devoid of biases toward origin, political affiliation, or legacy.
The outdated notion of protecting small businesses at the expense of scalability must end. Growth-focused policies should recognize that globally competitive businesses, regardless of size, drive employment and innovation.
3. Revamp Education
India’s education system prioritizes rote learning over creative and practical skills. Mark Twain aptly described education as “the lighting of a fire,” which underscores the need for reforms encouraging critical thinking and problem-solving. By focusing on holistic development rather than just exam scores, schools can nurture entrepreneurial mindsets. The scope of education has to expand beyond theoretical learning to cultivating industry relevant skills in tandem with the needs of a growing economy. Education can be delivered online, on the shop floor in the form of apprenticeships, and degree apprenticeships and must adopt the mantra of ‘earning before learning’.
4. Develop Infrastructure
Expansion of robust infrastructure in power, telecommunications, roads, and ports across geographies is essential for entrepreneurial growth. Reforms in real estate laws, such as rent control and land ceiling, can further unlock potential. Addressing these issues is vital for sustainable urban development and economic growth. Efficient infrastructure reduces corruption, eases the fiscal deficit, and supports countless ideas that currently falter at the outset.
5. Revisit Labor Laws
India’s rigid labour laws often discourage organized or formal hiring. Paradoxically, these policies harm job creation by making businesses cautious about expanding their workforce. A balanced approach that safeguards workers’ rights while promoting flexibility is necessary. The new labor laws must account for the recent developments such as the rise of a gig workforce that seeks greater autonomy and flexibility.
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6. Overhaul Bankruptcy Framework
Failure is inherent to entrepreneurship, yet India’s current laws stigmatize it as fraud. Entrepreneurs unable to recover from setbacks often face prolonged legal and financial entanglements. Reforming bankruptcy laws to allow quick resolution can free resources and give failed businesses a chance at revival.
7. Ease Funding Access
Funding for startups requires betting on future potential rather than tangible assets—a task unsuitable for state financial corporations. The government should phase out such institutions and instead focus on fostering a venture capital-friendly environment. Lower interest rates and policies encouraging foreign investment are some key steps toward this goal.
8. Encourage Industrial Clusters
Innovation thrives in clusters where suppliers, buyers, researchers, and employees interact closely. Bollywood (media) and Bangalore (software) are successful examples of this model. Andhra Pradesh’s focus on clusters is another promising move. Encouraging such ecosystems can lower costs, attract talent, and spur economic growth.
9. Promote Cultural Support for Entrepreneurship
Entrepreneurship is as much about culture as policy. Societal factors, like how families perceive entrepreneurial risk and the availability of relatable role models, play a significant role. Indian entrepreneurs such as Narayana Murthy and Azim Premji have inspired many, but more systemic recognition and education are needed to sustain this momentum.
Conclusion: A Call for Change
Nobel laureate Milton Friedman famously stated, “The greatest advances of civilization have never come from centralized government.” This statement underscores the importance of empowering individuals and entrepreneurs to drive progress. The entrepreneurial spirit that has fueled the global success of countless Indians now needs a supportive ecosystem at home.
By addressing systemic challenges and fostering a culture of innovation, India can transition from outdated job-creation methods to a vibrant, entrepreneurial economy capable of generating sustainable employment.
