India, ‘notorius for stifling entrepreneurship’, sees a deluge of billion-dollar corporations


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New Delhi: India was once considered a very difficult jurisdiction for a company to start doing business. However, over the past two decades there has been a deluge of billion dollar companies, many of them in emerging sectors like financial and educational technology.

These companies, which are hardly associated with traditional established groups of companies, are causing massive migration in the Indian corporate landscape and leading to intense competition with established companies.

Nearly 67 of the 100 unicorns – unlisted companies valued at more than $ 1 billion – emerged in India after 2005, according to a report by Credit Suisse earlier this month that highlighted the change in regulatory, business and financial The environment blamed for the company’s rapid growth has been education over the past two decades.

In sharp contrast, only 13 percent of the 336 companies (with valuations greater than $ 1 billion) in the BSE500 companies were incorporated after 2000. Interestingly, 36 percent of these companies started before 1975.

“There are now 100 unicorns in India with a combined market cap of $ 240 billion against 336 publicly traded companies with market capitalizations greater than $ 1 billion. Two-thirds of these companies were founded after 2005, while only 46 of the publicly traded companies were founded this century and 112 were founded before 1975, “the report said, which explained how a country that is” notorious for doing the Suppressing entrepreneurship, ”new businesses saw an increase.

Graphic: Soham Sen / ThePrintGraphic: Soham Sen / ThePrint
Graphic: Soham Sen / ThePrintGraphic: Soham Sen / ThePrint

While economic reforms freed up access to capital, substantial investment was still limited to a handful of dynastic family businesses. This has changed over the years, the report said.

The lack of venture capital has been countered by an increase in foreign private equity. The increase in teledensity and the proliferation of smartphones and the Internet have helped many companies further. “By 2005, less than 15% of Indians had a phone, up from 85% now. More than 700 million people now have access to the Internet due to cheaper data and falling smartphone prices, ”it says.

Further improvements in physical infrastructure such as road access, increasing financial innovation and the development of ecosystems in several sectors are also contributing to the growth of businesses.

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High degree of diversification

The list of 100 unicorns shows that while there are some old firms doing conventional businesses like the National Stock Exchange, Transunion CIBIL, and Parle Biscuits, most of them are emerging firms in sectors like fin-tech and educational technology (education) are. Technology).

Most of the unicorns on the list are household names that are present in many Indian households such as Paytm, Zomato, Flipkart, Bharat Biotech, Manipal Hospitals, Ola Cabs, Byjus, Book My Show, BigBasket and FirstCry.

The breakdown of the sectors shows a high degree of diversification, according to the Credit Suisse report.

Graphic: Soham Sen / ThePrintGraphic: Soham Sen / ThePrint

“The widely anticipated e-commerce, education technology, food technology, and mobility companies make up less than a quarter of the total. The largest number of companies are active in the financial sector (all non-banks), which in addition to the highly disruptive financial technology companies (FinTech) also include some conventional NBFCs (non-bank financing companies): given the unique position that India is in (low) financialization and at the same time worldwide leading financial infrastructure, ”says the report.

Software as a Service (SaaS), niche IT service providers, gambling companies, insurance technology, and even new age sales and logistics companies that are powered by technology have also grown large enough to be on this list, that is it in the report.

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The competition that leads to churn has also seen a shift in Sensex

The fact that the decades after liberalization have made it easier for new companies to start up and challenge the old incumbents was also highlighted in the 2019-20 economic survey.

In that churn, the survey had shown how the share of IT companies and financial services providers in the total market capitalization of the Sensex had increased over the past two decades.

“The forces of creative destruction following the liberalization of the Indian economy have led to the rise of new sectors such as finance and information technology. The share of these sectors in total market capitalization, which practically did not exist in the Sensex at the beginning of the 1990s, has increased so much over the years that these sectors now dominate the Sensex, ”says the survey.

Graphic: Soham Sen / ThePrintGraphic: Soham Sen / ThePrint

The report noted that this exodus has also resulted in a diversified mix of firms with a much lower concentration of market power, which allows for more competition.

“Sectors that were once considered to be the mainstays of the Indian economy are being displaced by new sectors that bring with them new technologies and products. The competitive advantage of entrenched companies is quickly challenged by new, smaller, and more agile companies. Every five years roughly every third company in the Indian economy can expect to be massively challenged by the forces of creative destruction, ”the report said.

Graphic: Soham Sen / ThePrintGraphic: Soham Sen / ThePrint

It has also been said that the gap between the sizes of the largest and smallest companies is rapidly decreasing, and consequently monopoly power in the economy is diminishing, giving way to more competitive markets.

“Consumers benefit from a wider variety of goods and services, lower prices and a continuous improvement in the quality of existing products,” he added.

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