Post On > Jan 28 2023 1480
The start-up revolution has taken India by storm. Proactive policy measures taken by the Narendra Modi government have paid off. Programmes like Stand-Up India or Start-Up India, Make-in-India and Digital India coupled with big-ticket reforms like Goods and Services Tax (GST) and rapid improvement in infrastructure created space for new-age entrepreneurship.
India had only 471 start-ups in 2016. As in July 2022, India had over 72,000 registered start-ups employing over 767,000 people. They are working in a wide range of areas from agri-marketing or agro-tech, to defence, space, e-commerce etc. The number of unicorns, increased from four in 2014 to 104 in 2022. An unicorn is an unlisted company valued over $1 billion.
West Bengal and Kolkata caught up with the national trend. From barely 8 in 2016, the number of start-ups in the state crossed 2300 in 2022. Of the total, nearly half came into being in 2021 and 2022. As a norm, most of these initiatives are based out of Kolkata and employ over 22,000 people.
However, the story has certain gaps. Kolkata was India’s top industrial and financial centre till the 1960s. The first software part of the country was developed in the city in the mid-1980s. It was one of the first four metropolises from where mobile services were launched in the 1990s. Till the advent of electronic trading in the 1990s, Kolkata had the country’s second-largest stock market after Mumbai.
True, the industrial and commercial prominence of Kolkata is diluted over the years. However, it is the country’s oldest education hub. At least four topmost higher educational institutes – Indian Institute of Technology (IIT), Indian Institute of Management (IIM), Indian Statistical Institute (ISI) and, Indian Institutes of Science Education and Research (IISER) – are located in and around Kolkata. This is apart from scores of other prominent higher educational institutes and research facilities in various fields of science and technology.
All these indicate that the state and the city should have steady access to quality human resources, which is crucial for start-up growth.
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To be precise, Kolkata and West Bengal is far better positioned (or privileged) than the rest of the Eastern, Northeastern and central Indian states; which lack both industrial and educational legacy.
Comparison with Uttar Pradesh is distortionary. UP is India’s largest state with more than twice the population of West Bengal. The Western part, closer to Delhi, is developed, but the Eastern part of UP is as backward as Bihar in every sense of the term.
Given the above, the number of start-ups is way less than its potential in West Bengal. On a per-capita basis, Bengal has fewer start-ups than Odisha, which has come up in the country’s industrial and IT map only a decade or more ago.
Nine cities in India had a population of over 4 million in the 2011 census. Of them, only Kolkata and Surat (Gujarat) do not have a unicorn. Gujarat is India’s top industrialised state and has at least two unicorns from Ahmedabad. West Bengal has none. In comparison, industrially backward Kerala has three unicorns. Overall, 18 cities in India have unicorns.
The presence of unicorns signifies the scale of operation and ability to attract investors’ finance. Both are crucial for the success of start-ups. Without the rapid increase in scale, a start-up will remain a small and medium enterprise.
That Kolkata is low on start-up concentration and does not have any unicorns, therefore, indicates structural hurdles limiting the scalability of start-up operations from the state.
Iravati Research and Communication Centre tried to understand the issues involving start-up operations in the state, through a discussion round with three prominent, first-generation, Kolkata-based entrepreneurs.
Of the three, Shantanu Som is an IT veteran. He left his in Railways to set up his Kolkata-based software OEM, Somnetics nearly three decades ago when there was barely any policy support to new initiatives. Today, Somnetics caters to clients across the country and abroad. However, the local economy has zero contribution to his turnover.
The story remains the same for Angshuman Bhattacharya’s SIBIA Analytics and Dr Arindam Saha’s Vista Intelligence. Both are into analytics and prediction. West Bengal has little contribution to their respective businesses.
Founded in 2013, SIBIA offers machine learning solutions related to consumer behaviour. It is acquired by Adani Enterprises at Rs 14.8 crore ($1.8 million at the current exchange) in December 2022. Adani has plans to increase the bench strength from the current 50.
Arindam’s Vista Intelligence started operations in 2021. Currently, they are into financial and consumer analytics. Vista will next enter bioinformatics and sports analytics. He has already raised the second round of funding and has a 20% stake by Jubilant group, the master franchise of Domino’s Pizza in India.
One can understand, an IT-OEM living on offshore clients. But predictive analytic solutions are the lifeline of a growing economy. From FMCG to banking and finance, stock brokers or the entertainment industry everyone needs such tools for efficient decision-making. Why shouldn’t they sell in Kolkata?
There may be many reasons for it. First, the state doesn’t have the headquarters of many successful large corporates. Even those who have registered offices in Kolkata have shifted the base of critical operations to more important cities. India’s top battery maker Exide, for example, has its registered office in Kolkata but the marketing head sits in Mumbai.
To be precise, corporates may have their back or sales offices in the city but decision-makers are in other locations. It means a start-up has to be visible in those locations to tap the market opportunity. For a small initiative, running on a shoestring budget, it's not possible to open multiple offices. It is better to shift to the location where his customer is.
The locational disadvantage cuts both ways. A low corporate base also means, low availability of senior-level talent - which is important for scale - and, a low population of deep-pocket investors who comes in at the 2nd or 3rd round of funding. And, the bigger the size of the funding, the more careful are the investors.
The problem doesn’t lie with the talent of start-up founders or the product they develop. Shantanu remembered a successful IT initiative, catering to the finance sector, moving out of Kolkata as they struck a major deal with a bank. They moved to the same city where the bank is headquartered.
Angshuman reminded us that investors prefer geographical proximity to maintain close tabs on the start-ups they are backing. This is also important for mentoring. According to him, it is a difficult task to raise as modest as $1 million (Rs 8 crore) finance from Kolkata. He is clear that till such time the funding issues are resolved Kolkata may not get its first unicorn.
You may watch the full discussion here:
Other panellists supported Angshuman's views but with a rider. Arindam felt that the market issues are equally important. Vista, he said is lucky that its investors allowed it to be run from Kolkata. However, as he launches the bioinformatics and sports analytics products, he might run out of luck.
The buyer/investor community in such products are based out of Bangalore, Hyderabad or Gujarat etc. For visibility, it might be essential for Vista to shift base. The initial advantages of starting operations from Kolkata even out in 2-3 years. As you scale up, the disadvantages of Kolkata become more apparent, he said.
Both the factors of the market and fund-raising opportunity are linked to a crucial indicator, the per-capita income of the state. If West Bengal doesn’t have an industrial base so does Kerala. However, Bengal’s per capita NSDP (net state domestic product) at current prices is 17% below the national average. Kerala’s per capita is 41% higher than the national average.
The difference between the two is evident in the share and size of organised economic activity in Kerala vis-à-vis Bengal. The southern state has a distinctly large retail sector. India’s largest shopping mall - Lulu International Shopping Mall - is situated in Kochi. The promoters of Lulu are from Thrissur.
As an end result, Kerala has multiple unicorns. Top jewellery brand Joyalukkas is based out of Kerala. West Bengal doesn’t have such examples.
In the end, therefore, the start-up revolution is closely linked to the overall economic health and aspirations of the land. West Bengal has to find answers to both to see meaningful change in the start-up landscape. ***
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