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Indias entrepreneurial future

Few countries have more entrepreneurial potential than India. Its home not just to the wave of IT offshoring firms of the 1990s and early 2000s, but also to some of the most interesting unicorn tech startups in the world, including Freshworks, Paytm, Oyo and of course Flipkart, which sold to Walmart last year for $16 billion.
India though is also at something of an economic crossroads. Unlike China, which as we discussed yesterday faces a conflict between open entrepreneurship and strict party control in its next stage of development, India must build up its indigenous startups while also opening up to the global economy.
That economic balancing act will be tough. As James Crabtree, a long-time writer of the Financial Times based in Mumbai, argues in his book The Billionaire Raj, India faces a triple threat of inequality and the new super-rich, crony capitalism, and the travails of the industrial economy as it seeks to move the country into middle-income status.
Crabtree, who built up access among Indias traditional business elite over many years, sees a nation that is starving for more government capacity. India has transitioned in a few short decades from a moribund economy languishing under a sclerotic and byzantine bureaucratic model (sometimes referred to as the license raj) into an increasingly open and competitive market for goods and services.
Yet, success outside of a scant few industries namely IT services has been undergirded by political access and the trading of favors. Crabtree chronicles a whole crop of entrepreneurs from across the country in industries as far afield as mining to liquor to aircraft to show the constant intermixing of Indian business and Indian politics.
That crony capitalism is at the heart of what he dubs todays billionaire raj a government that isnt for the ultra-rich so much as it lacks any capacity whatsoever to stand up to its worst excesses and corruption. The book is one part travelogue, one part analysis, and one part biographical bookshelf that together paint a complicated portrait of Indias growth ambitions and challenges to scale.
Given where Indias fortunes have been made the past few decades, the book mostly ignores the tech industry, save for fleeting mentions scattered about. But I asked Crabtree in an interview last week where he saw the country headed, and how technology might underpin that.
People thought that India was going to become the next hot market for Silicon Valley tech money after China, but it doesnt look like that will be the case, he explained. Unlike China, which created friction in market entry for foreign tech companies, India has been reasonably open. The biggest search engine in India is Google, the biggest social network is Facebook, he noted. They dont make much money in India, but they have spectacular user growth.
When I lived in Mumbai, there was a big tech investment wave in the after wave of the Alibaba IPO, he explained. There were these great hopes that India would follow the sort of hockey stick growth seen in China. Yet, the countrys demographics dont back that up. India has a tiny middle class 10-20 million using a reasonable definition of the term middle class. That group is simply not large enough to support the valuation dreams underpinning some of Indias most-discussed unicorns. Growing users is really easy, but growing revenues is just much more challenging, he said.
The challenge ahead for India is that a form of economic nationalism is increasingly popular in Delhi. We have covered a bit of this change around data localization / sovereignty, but it is certainly much wider than those policies. I think there is a slow but steady trend toward closure that is partly to do with Indias domestic politics and partly due to international climate, Crabtree explained. The thinking is that, China has produced Alibaba, Tencent, and Baidu [ but] India hasnt produced any major global stars yet.
Fueling that rift is a sense that foreign tech giants dont pay much in the way of tax, they are not Indian companies and that they havent behaved particularly well. Crabtree was referring specifically to Facebooks Free Basics program, which became deeply controversial in the country, although those feelings are not limited to just Facebook.
India has a massive election coming up in just a few weeks, which will decide whether current Indian prime minister Narendra Modi stays in power. Beyond just policy, Crabtree sees a major challenge for all foreign tech companies, but particularly those operating social networks. The stakes are very high for how social media manages the stresses and strains of a competitive and potentially nasty Indian political campaign, he said. If they are blamed for something that went wrong this would be immensely damaging.
India has the potential to be the single largest democratic free market economy in the world. But it needs to simultaneously cut down on its corruption, create jobs for millions of new entrants to the labor economy every year, stand up a new generation of digital-first behemoths, all the while balancing the needs of an incredibly diverse and cacophonous democracy buffeted by global markets and tastes. Thats ultimately a tall order, but if India wants to migrate from a billionaire raj to an entrepreneur raj, it will have to do all of that at once.

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Indias entrepreneurial future
Roberto Machado Noa/LightRocket via Getty Images
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