Far fewer firms - just 1% against 5% in the US - grow dramatically at 15% a year for the next five years. Consequently, in Bangalore non-IT job creation is overwhelmingly in new rather than existing firms. Firms in the US and India tend to be started with similar amounts of capital, although given local incomes, it takes a lot more money to start a business in India. However, the US firms grew to revenues 378 times their initial capital in five or six years; the Indian firms grew to just 20 times their initial capital. Importantly, the tax system favours smaller businesses, so Indians are better off running 10 small businesses than one bigger company.
Source: Thinking small: entrepreneurship in India
Columbia Ideas at Work, 25 January 2006
Review by Steve Lodge