Lack of free market hindering the growth of startups in India


“Capitalism, or more precisely, the free market system, is the most effective way to organize production and distribution that human beings have found”, said Raghuram Rajan in his book Saving Capitalism from the Capitalists.

There are obvious reasons for the failure of startups in India.

Despite the fact that there is no dearth of skilled labour of talent in India, startups fail to capitalise on the starts they make.

The concept of startups developed in the US and migrated to India. In the USA, a friendly financial environment facilitates the growth of the startups but such phenomenon is not evident in India.

It is noted in the USA that a person is eligible to get a loan from a financial institution if his credit history is ok. However, this is a far cry in India.

Firstly, India faces the shortage of financial institutions. And the financial institutions that are operating in the Indian market are reluctant in providing loans to beginners. Moreover, for getting loans a person needs to keep something as a security deposit. It is ironic that if the person has the security why he would opt for loans.

Lack of such essential credit facility is choking the dreams of the startups.

Secondly, United States is a place where a constant financial innovation is at play. The financial innovations facilitate the financial institutions to risk providing loans to people for their ideas. While financial institutions check the credit-worthiness a person, Indian institutions check the security deposit that they can keep with them. This process hinders the growth of the companies to a great extent.

Thirdly, India is yet to develop a free market. Owing to this the products of the startups in India fail to fetch a profitable price. If the products go unsold the startups fail to grow. The big giants control the price of the products and the small companies fail to compete with them. Lack of a regulatory body is a big hurdle in the path of the success of the startups.

If these problems are addressed then India can build on the dreams of the startups.