Why Aren’t More Tech Startups Sprucing Up In India?

Tuesday, October 27th, 2009

1.

There are thousands of techies in India. But if you compare the ratio of techies-to-startups between USA or Israel and India – you’ll see that India lags far behind. Not a lot of innovative ideas come out of India. Why is this so?

2.

History gives us a clue. Many people have pondered over why the Industrial Revolution originated in Britain – and not in China or Spain or someplace.

Trade, especially woolen trade depended entirely upon London’s port.? And as trade grew over the years, so did London’s population. London’s population exploded from 50,000 in 1500 to 200,000 in 1600 and half a million in 1700.

And because of the explosion in trade, the standard of living of people in London increased too. The population just didn’t grow in numbers. They had money to spend too!

But London’s energy requirements didn’t grow as quickly as its population. The world relied on wood fuel because it was clean and cheap. The price of wood fuel and coal was the same. But coal was much easier to get than wood fuel. And so as London’s population grew, wood became more expensive because of supply problems, and so they started relying more on coal – even though it led to pollution. Where as, the rest of the world still stuck to wood.

In the 18th century, the French government actually tried to promote British technologies in France. But they failed because their economies of scale weren’t the same as that of Britain. In London, labour was expensive than energy. The opposite was true in the rest of the world. Energy was more expensive than labour.

Expensive labour + comparatively cheap energy = new innovations.

3.

And that is why, even though there are more IT people in India than in USA, more innovations pop out from USA than from India.

Because in India, labour is cheap and energy expensive. While the opposite is true in USA.

And so Indian IT folks take the easy part of providing services. While US IT folks take more risks and innovate more.

4.

How do we change that?

Some thoughts:

i. Increase the minimum wages in India.

ii. Invest in infrastructure.

iii. The IT parks in India could be converted into kick ass charter cities.

  • Invisible Lurker-Helper
    Okay, I am not trying to diss you or de-mean anything you said. I am just trying to help.
    The title of this post seems to be wrong. I think you wanted to say "Why Aren’t More Tech Startups Sprouting In India?" - and not SPRUCING. There is a huge difference in meaning between the two words, google the word's definition if you like. :-)
  • How does expensive labour and cheap energy relate to innovativeness. I agree that you see a similar pattern in what happened in London many years ago. But it would interesting to dig deeper and see if we can somehow relate how the cheaper energy and expensive labour relate directly to the innovative behavior of the people or was it the other way, since the people were innovative and there was not enough supply of people who could start working in the factories right away, the labour was more expensive.

    In India innovation does not happen because we have cheap labour - I do not think it is the case. Labour is cheap because there are too many of us around. It is a simple demand supply equation. And people are innovative by nature, probably not very enterprising. And ofcourse there are other problems with being a large country with high population.
  • View things from the window of the theory of "opportunity cost".

    If labour is cheap, it makes sense to solve problems with labour intensive techniques. Technical innovations may be quicker but will be more expensive comparatively. So the cost of labour has to be high.

    Case in point: carpenters in India still use manual hammers. It takes 6 months on average to build a home in India - something that would take 3-4 weeks on average in western Europe or USA. But even though the time taken is more, the cost of building a home in India is a fraction of the cost of building it in Europe. Cheap labour = it doesn't make monetary sense for the carpenters to buy automation machines.

    If energy is expensive, technical innovations that consume a lot of energy instead of human power will be expensive too. Hence again, cheap energy is a requirement for an innovative culture.

    One of the reasons farmers in India don't use mechanized tools and tractors is because of the high energy costs.

    Labour being cheap because India's population is over 1 billion is also not right. USA has a lot more people than say Pakistan. Yet, USA wages are way higher than Pakistan or Bangladesh or other such countries with lower populations. Wage rates are determined more by the amount of work than by the number of people.
  • Now I agree on the cost of labour/energy and how that translates to being innovative and using technology and not labour.

    However, wage rates cannot be the sole way of determining the innovativeness. Because wage rates them selves are a function of demand and supply. And in this case the demand has to increase first (more work). Increasing the wages while there is still not much work around will not make sense. However, if the work available increases the wages will rise on their own.
  • I personally think that things are circular.

    Its like - you smile and your mood improves. And when your mood is good - you smile more.

    Similarly, you increase minimum wages a bit - and more money goes into circulation. More money into circulation = more work generated.
  • Yes it is a cycle for sure. But the start has to be demand based. Just raising the wages might not help. In my view that might be akin to creating artificial demand.
  • amsharma
    .
  • I quite liked the the cheap energy bit, it's a new perspective.
  • I really feel basic wages need to increase!
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