Shrinking job market and funding paradox for start-ups

There is a mixed feeling in the country today about almost everything. Corporate performance has largely been in line with expectations in the first half of the year, but with the increase in oil prices and the fall in stock markets and rupee value, the fiscal and current account deficit situation is a matter of worry.

Some entrepreneurial companies have scaled the billion dollar summit taking the total number of Indian unicorns (billion dollar market value) to 18, creditable though still way below the US and China. While late-stage funding is gathering attention and funding, seed capital availability for start-ups has fallen by over 20 per cent in the first nine months of the year, a worrying feature for many aspiring entrepreneurs who are leaving jobs or not searching for them in the hope of emulating the Flipkarts and OLAs and building high value companies. And last but certainly not the least, job creation in the country has been weak for many years. All this also leads to a pertinent question – for a country like India with its three million young population, are venture capitalists funding the wrong things and by supporting automation and artificial intelligence companies, actually making the problems of the country worse?

These are a complex set of issues. The core of the economic engine, manufacturing has declined in terms of contribution to GDP to 15 per cent although there have been brave pronouncements of taking it up to 25 per cent. This will need over a trillion dollars of investment and it is unlikely to create many jobs in the factories given the rate of investment in digital technologies, robots, artificial intelligence, automation and autonomous machines. The fast-growing services industry is also likely to see less job creation and possibly even job losses in future with robotic process automation enabling most repetitive processes to be free of human touch. As Artificial Intelligence BOTs supplement self-service, the call centre and transaction processing industries are also at threat. IT services has already seen the onslaught of automation in core areas such as application and infrastructure support and testing and is unlikely to rediscover the fast clip of jobs addition that we have seen in the past.

The good news is that there will be new opportunities created in customer service and supply chain as more and more ordering is done online through computers and mobile phones and transportation of products is done in small lots. There will also be manpower deployed in the fast-rising Fintech and EdTech companies though they may not compensate for the job gouging done by automation and artificial intelligence in the core sectors of banks, insurance companies and traditional retail. Speaking at the Smart Manufacturing conference of the CII in Delhi in October I recounted my experiences visiting electronics manufacturing facilities in China, Shenzhen particularly, where the erstwhile hundreds of thousands of factory workers have been replaced by a few hundred managing thousands of robots. Robots are becoming cheaper, do not take coffee breaks and in the emerging world of Industry 4.0 will seamlessly be guided by Digital Twins to interface with machines, warehouses, material handling equipment and the few persons who will still be there to manage the complexities of programming of operations.

The problem for well meaning start-ups today is that access to capital in the early stages of their journey is becoming increasingly difficult. Seed and angel funding for social and non-tech entrepreneurs is rare and venture capital is moving further and further down the chain, willing to support only when adequate product-market connect has been established and a steady revenue stream is evident. If the demand is towards more automated and more AI enabled businesses, the funding community can hardly be blamed for shunning the entrepreneurial ideas that call for human skill or slower scaling service opportunities like tourism and skill development. We are stuck in a paradox. The country needs to find livelihoods for three hundred million people, the business models are changing and capital availability is diminishing. With development finance institutions having faded into the sunset, it will need a new breed of impact investors and significant government support to restart the spluttering job engines. But we will have to find a way to do this if the India of our dreams with happy gainfully employed people everywhere has to become a reality!

Author is Chairman, 5F World