'Jugaad' Economy 17 March 2010, Ryan Streeter, Legatum Institute Entrepreneurship in Asia may be the least understood of today’s most exciting economic phenomena. Even in developed western economies, researchers and analysts are only now beginning to understand the economic contribution of the enterprising class of innovators, business owners, and risk-takers we call “entrepreneurs.” Entrepreneurship in Asia is even less well understood, despite its popularity. India is increasingly important as a laboratory of bottom-up, gritty, individualistic entrepreneurship, different than, say, the Chinese model. Harvard University’s Tarun Khanna, an expert on Chinese and Indian entrepreneurship, has in his work contrasted China’s government-driven, top-down style of enterprise with India’s “interesting, vibrant way of doing things...in the private sector...far away from government intervention.” Understanding how enterprising individuals in India think and act is important to understanding the larger Indian economy and its future. However, little effort has been made to understand entrepreneurs themselves. For this reason, the Legatum Institute recently conducted a survey of nearly 2400 entrepreneurs, business managers, and aspiring entrepreneurs in India. The results confirm Khanna’s observations and paint a fascinating picture of India’s enterprising class. First of all, optimism about opportunity in India is strong, most of all among lower-income individuals and those whose companies are growing more slowly. Eighty-four percent of business owners whose companies are growing under 15 percent annually believe one can get ahead by working hard in India, compared to 68 percent of those experiencing rates of growth above 50 percent. Nearly half (49 percent) of individuals earning less than $6,500 believe India is a good place for entrepreneurs to succeed, as do 52 percent of those earning between $6,500 and $16,200. Only 28 percent of those earning more than $26,000 believe the same. These findings suggest a likely willingness to engage in entrepreneurial activity among those who have the most to gain. It also possibly suggests that those who have already enjoyed success have suffered a few bruises along the way dealing with India’s notoriously ineffective bureaucracies and pervasive corruption. Corruption and bureaucracy are indeed perceived as widespread threats to enterprise. Ninety-three percent of respondents view corruption as a problem, with 53 percent saying they believe that it specifically hurts business. Forty percent say they have been pressured to pay a bribe. And Indian entrepreneurs rank government regulations along with access to finance as the biggest barrier to starting and running an enterprise in India. Government bureaucracy is also cited as one of the top three reasons businesses fail in India. Perhaps because of corruption and bureaucracy, Indian business owners place a high degree of faith in “jugaad,” the Hindi word signifying the ability to improvise and work around prohibitive rules and practices. Eighty percent of respondents said “jugaad” is important to their success as entrepreneurs. This is especially the case for those running small enterprises. And perhaps unsurprisingly, the younger and poorer one is, the more important jugaad is for business success. Despite the extra effort required for enterprising individuals to work around India’s prohibitive barriers, they remain bullish on India’s economic future. Some observers might even accuse India’s entrepreneurs of irrational exuberance. Not only do 87 percent of respondents say India will be a stronger global economic power in five years, but 53 percent believe India will be the most important global power in twenty years. This hyper-confidence in India’s future is a reflection of how India’s entrepreneurs view themselves. Nearly two-thirds of respondents believe that Indians are more entrepreneurial than other countries (34 percent say “a lot more”), while only 19 percent believe Indians are less entrepreneurial than others. More than half believe their personal abilities to weather risk amidst uncertainty and maintain internal determination matter more than access to finance to explain their success. In other words, they believe an entrepreneur’s character matters more than the money he or she has. So where does the entrepreneurial spirit in India come from? The greatest percentage (36 percent) of respondents say “family.” Family is an important practical resource, as well. More than personal savings, loans, investors, and grants, respondents cited family resources as the single most important source of financing when they started their businesses. Indian entrepreneurs are not only family-centric, they are socially-minded. Fifty-four percent say that the social impact of their businesses, such as improving their community or improving living standard among employees, is a main motivation for what they do. Given the self-confidence, improvisational ability, and sense of purpose of India’s enterprising class, perhaps it is unsurprising that forty-five percent believe the global economic crisis has had only a “small negative impact” on their ability to start and run a business. Only 18 percent think the crisis has had a large negative effect, and 22 percent think its effects were mainly positive. Clearly, India’s entrepreneurs are a group worth watching for anyone interested in India’s economic future. Ryan Streeter is a Senior Fellow at the Legatum Institute.
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