Why young, not ageing, firms can spur job creation -Dhirendra Tripathi
* Contrary to popular belief, the Economic Survey 2019 says “dwarfs”—over 10-year-old firms with less than 100 employees—which account for a majority of firms in organized manufacturing, hold back job creation and productivity
* Mint explains why it is so and the way out
How do small and young firms fare in terms of job creation?
The Economic Survey says the contribution of small firms to output and employment in the manufacturing sector is insignificant, though they make up around 85% of all firms. But it makes a crucial distinction: most young firms are small, but most small firms are not young, at least in the Indian context. It says the notion that small firms create jobs has prevailed because young firms, or “infants", which also happen to be small, generate employment, besides adding value to the jobs ecosystem. Small firms operating for over a decade typically destroy as many jobs as they create.
Are “dwarfs" peculiar to India?
The Economic Survey categorizes small companies older than 10 years as “dwarfs". It says such companies have continued to witness stunted growth despite surviving for over a decade. Though a company employing 100 workers is not large in the global context, in India it is. The inability of these small, but old, companies to create jobs is peculiar to India. An average 40-year old company in the US generates five times as much employment as its counterpart in India, observes the Economic Survey. Even an average 40-year old company in Mexico generates 40% more employment than its peer firm in India.
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