India appears to have lower rates of formal entrepreneurship per-capita compared to other countries despite being the third largest ecosystem for entrepreneurship in the world, the Economic Survey 2020 notes.
Besides other factors like access to markets and physical infrastructure, the survey notes that higher literacy levels and better education infrastructure are associated with greater entrepreneurship at the grassroots level.
“Beyond a point, increased access to local markets may create hyper-competition and discourage entrepreneurship,” the survey says.
“On the contrary, no such diminishing returns are apparent with increases in literacy or improving education infrastructure. Increasing literacy levels or the formation of new colleges appear to increase the number of new firms monotonically,” the survey says.
The survey justifies the correlation by pointing out that eastern part of India has the lowest literacy rate of about 59.6 percent and is also the region in which formal entrepreneurial activity is the lowest. It then says that the impact of literacy on entrepreneurship is most pronounced when it is above 70 percent.
“Measures to increase the literacy levels rapidly through the institution of more schools and colleges will spur entrepreneurship and consequently local wealth creation,” the survey says.“Following the successful contribution of privatization of engineering colleges to India’s software exports, governments could also explore the privatization of education to augment education capacity at all levels of education,” the survery adds.