New Delhi: New Indian companies are more resilient and better prepared to achieve economies of scale than their counterparts in other countries, showed the analysis of the data of the companies registered in the country in the last three decades.
According to the data analysed by SBI Research, nearly 45 percent of the companies in India stay in business for more than 20 years against the global average of 5 years. According to Soumya Kanti Ghosh, Group Economic Adviser of State Bank of India, the survival statistics of India Inc. by analysing and examining the firms registered in the last three decades and their status of activity reveals some interesting observations.
Globally, it is believed that not many new firms survive beyond 5 years. In the US, for instance, the survival rate of new firms after six years was found to be around 40 percent. But the Indian data shows that, on average, new firms have a higher survival rate here of around 45 percent since the early 90s. The data showed that during the pre-liberalisation period (before 1990), the survival rate was around 41 percent though the number of companies started was quite low, often started by promoters with enough equity, and hence a meaningful result cannot be deduced between two phases.
Companies formed in the last 2 decades have better survival rate
Data shows that the companies formed since 2000 have a higher likelihood of survival compared to those that have been established earlier. The survival rate also improves for firms born in recent years. Moreover, the survival and growth of firms have been much better in the western and southern parts of the country as they are ahead of the northern and eastern parts of the country in economic development.
On average, 45,600 new firms were registered every year in India, in the period between 1980 and 2018. The formation of new companies grew at an average annual rate of 7.5% during the around 40-year period. However, the number of firms formed during 2018-2022 has been much higher in comparison, with policy initiatives, regulatory reforms, ease of doing business and a spirit of entrepreneurship sweeping across the nation.
New firm registration jumped after Coivd
Post Covid, the number of companies getting registered per day has jumped above 50% and India could well be on the way to finishing FY 2022-23 with around 2 lakh companies registered in a single year (FY).
Growth brings new challenges
As companies grow and attain scale, with smaller firms moving towards mid-tier status and mid-tier companies edging towards large status, the transition is mostly led by organic growth. Mergers and acquisitions are more of a characteristic of larger firms in India. There is always a greater probability of firms from new economies or sunrise sectors of the economy moving to the top echelon and disturbing the ecosystem, displacing the hitherto top occupants.
For example, startups such as Ola, Ather and others left established two-wheeler players such as TVS, Hero and Mahindra in the country’s switch to electric two-wheeler market. Similarly, startups such as Flipkart and Snapdeal among others left behind more established players with their foray in the country’s e-commerce sector.
That, however, does not mean that concerns from the old economy will have to side-step to make room for such claimants. They usually fight by diversifying their revenue streams and areas of operations, often going for an inorganic route.
“Going forward, we can witness companies in services, green energy, clean mobility, data-led smart solutions (with Artificial Intelligence and Machine Learning) front leading the drive to claim top spots in India Inc. and the share of new companies as also those with a long corporate history can be a balancing act as they diversify into promising sectors,” Soumya Kanti Ghosh said in a statement sent to ETV Bharat.
