India needs more domestic and traditional capital infusion in order to boost jobs, and create opportunities for the skilled workforce, Sudhir Sethi, partner at venture fund Chiratae Ventures said in a joint interview with Amod Malviya, the founder of Udaan. Malviya said startups were already moving in that direction by giving SMEs a level-playing field with technological empowerment. Edited excerpts:
The Economic Times (ET): Why do you think India has an employment problem even when the economy performs well?
Sudhir Sethi (SS): There’s a mismatch, at least partially, between domestic capital flows and job creation. In the past 10 years, the top nine IT companies have spent about $44 billion in dividend distribution and share buybacks and the BSE-30 about $166 billion in the same period. When this money goes into the hands of shareholders, they deploy it largely in public equity instruments. So, a large part of this capital, which I call traditional capital, does not create as many jobs. In India, the local risk capital is less than 2-3% in comparison to about 55% in China. I think there needs to be an ecosystem wherein capital flows can be tweaked, and in this scenario, a part of the $166 billion (should) be channelised from the old economy to the new. Once we start doing this, you’ll find job creation everywhere.
ET: How big is the venture investment from overseas and has this capital been able to move the needle?
SS: The total venture (risk) capital deployed over the past six years is $120 billion and going forward, India will absorb an additional $300-$350 billion in the next six years. Notably, an increasing amount of this risk capital is coming from overseas and not from the traditional industries. There’s a lot of Indian capital; for instance, family wealth as well as corporate wealth and even individual wealth is increasing. If we can put a portion of this at risk, it will have a massive impact in the country. The process, however, requires policy intervention, coupled with education of families — risk capital for India, by India. As soon as local capital is utilised in startups, we will start seeing movement towards employment.
ET: You work with SMEs. How do you see technology impacting them?
Amod Malviya (AM): Every technological innovation can be utilised in multiple ways. One of them is to empower those who don’t necessarily have the required skills to build tech by themselves, but can leverage it to increase productivity. The internet, for instance, is a hugely democratising force. It fixes information asymmetry in ways that were just not possible earlier. We will also see platforms that will help deploy technology to empower SMEs and farmers — allow them to be more productive and participate in an economy which is increasingly becoming technology led. Traditionally, tech has not been used to address this section, partly because capital tends to flow where the return on investment is high, resulting in a selection bias towards the privileged sections of society.
ET: What role can startups play?
AM: I think startups need to stop looking at jobs from a short-term perspective. For instance, the job of a delivery boy may be effective now, but redundant five years later. We need to think about how these people will be gainfully employed as technology continues to pervade the economy. What’s important for us is ‘how do we empower people, give them a certain type of ability to compete with the internet, and allow them to reach an audience which is larger?’ In line with this thought, we have started seeing some great transformations in Udaan. For example, SG Convention from Indore — a small T-shirt and shirt trading business — has scaled to a monthly business volume of Rs 1.5 crore. Just by adopting online methods, it is now a manufacturer of products ranging from men’s to women’s to kids’ garments, and now employs 60-70 support staff to manage its business. My point is that the biggest power of internet is that it tends to create micro entrepreneurs, so that it’s not about getting people a job for the next two years, but in fact setting them for long-term success.