Start-up. It’s something which a layman finds easy to understand but hard to explain. So the first question.
What is a start-up?
A start-up company is an entrepreneurial venture which is mostly characterized as a newly emerged, fast growing business that may be driven by a profit motive or a social service motive, as in some cases. In the modern era’s business world, start-ups are considered as the parameter to measure the efficiency, growth and development rate of the trade and commerce industry of that particular economy. Lately start-up count is being referred to as one of the most important development indices, a nation can have.
An entrepreneur is said to be a highly qualified professional who can change the world through just one amazing idea. He may be exceptionally good in going through his idea thoughtfully, listing out all his forecasted expenses and may even possess good work ethics. But still he is bound to face problems which are beyond his control such as the government policy for start-ups, the Central Bank’s policies regarding investments and money, market competition, etc.
Here, we try to understand how economics brings up obstacles in the way of a start-up much before it’s even born and how the government assists the entrepreneurs to deal with the same.
CREDIT & RESOURCES
The first and the foremost problem an entrepreneur faces is the availability of finance and resources for production. He needs abundant investments and resources in order to start a business. But this is way more complex than it sounds as investors don’t invest in projects which they don’t find profitable enough. This is where the government has to step in as a helping hand by providing ample support to entrepreneurs. This includes low interest rates on credit which further depend upon the principle rates of the Central Bank of the country.
In India, these refer to the RBI’s repo rate and reverse repo rate. Repo rate, if increased raises the bank interest rates on loans as well and reverse repo rate does vice versa. However, these policy instruments cannot be changed to one’s own will because of which the government has to provide subsidies to entrepreneurs to deal with high interest rates and other attractive benefits to entrepreneurs such as low power costs for the first five years of the venture, land for less rent, etc. in order to flourish the start-up growth rate.
One of the most important challenges to a start-up is the fierce competition that resides in the market. Companies in the market develop a brand value over time which a new start-up can’t brave that easily.
From the entrepreneur’s point of view, competition is an extremely difficult obstacle but from the government’s point of view, this competition is very important as this is something which forces more and more start-ups to come up, as entrepreneurial skills in an economy are abundant and there are many entrepreneurs out there who want to compete with these well-established brands just because they think that their idea is way better than the others. This is the reason why the government always advertises regarding start-ups.
DEMAND & SUPPLY FACTORS
An entrepreneur cannot start a business without possessing proper knowledge about the demand and supply of products and services, especially from the product line he wants to enter into. Now demand and supply cannot be controlled by anyone, be it the government or someone even more superior which further implies that the entrepreneur, through proper assessment and knowledge has to brave this challenge all by himself.
A start-up immensely depends upon the demand of different products and services as it always wants to provide the products or services which are more in demand but less in supply. This means that the whole pattern of economic growth, GDP growth, human resource hiring, etc. that the start-up would serve in the future depends upon the product the start-up wants to supply and of course, its current demand and supply patterns as well.
All start-ups serve one important purpose in an economy – employment. As these are new businesses, they hire more and more workforce as labourers, managers and what-not which further brings down unemployment levels.
Start-ups look for fresh talent and intellectual minds which further brings out the better of the individuals. It even leads to human resource development overall in an economy which is another reason why the government of every economy supports start-ups.
Especially in countries like India, where unemployment touches sky high figures, it’s important for the government to understand this and motivate more and more people to start businesses.
FOREIGN ECONOMIC CONDITIONS
Last but not the least, economic conditions prevalent abroad also affect start-ups. This mainly involves the start-ups who export their finished products to other countries and the ones who import their raw material and resources from abroad as their demand and supply chains may get affected immensely, during conditions of war, depressions, crisis, etc.
When the whole world faces a crisis, the government again comes in as it tries to sell the Central Bank’s foreign exchange reserves in order to bring in the much needed foreign exchange which acts as a small help to start-up owning entrepreneurs.
So this is how economics affects start-ups and how the government of the nation tries to help entrepreneurs evade these. Most of the governments of the world economies have now started taking initiatives by making special organs that look after start-up growth in the economy.
The Government of India has also taken such an initiative known as Start-up India which registers all the start-ups coming up in the country, provide them the much required information regarding stuff and lastly, performing all of the above mentioned tasks in order to support the entrepreneurs.
Since then, the Commerce Industry in our country has shown a very positive growth and we hope to see it bring many more laurels in the future as well.