Start-ups and small scale industry growth in India: do institutional credit and start-ups make a difference?

Subhash V. Kasturi and M.H. Bala Subrahmanya
Authors registered in the RePEc Author Service: Bala Subrahmanya Mungila Hillemane

International Journal of Entrepreneurial Venturing, 2014, vol. 6, issue 3, 277-298

Abstract: Small scale industry (SSI) growth has been considered vital for employment generation, industrial production and export promotion in Indian economy since independence in 1947. Accordingly, India adopted a dual-pronged strategy for SSI promotion characterised by institutions and policies. Institutional finance has been the major source of capital for SSI including start-ups and even entrepreneurship is promoted with the support of institutions and policies. Because of the institutional financial support, start-ups have grown steadily and consistently though at a moderate rate in Indian economy. Our analysis using vector auto-regression (VAR) models and Granger causality tests ascertained that net increase in institutional credit flow to SSI had a positive impact on the growth of start-ups. But growth of start-ups did not have an impact on either SSI employment growth or SSI production growth but start-up growth positively influenced SSI export growth. Given these findings, steps to increase the credit flow to SSI to Reserve Bank of India (India's central bank) prescribed level of 20% of SSI turnover would give a fillip to the emergence of start-ups and thereby to SSI export performance.

Keywords: startups; small scale industry; SSI; bank credit; exports; India; credit flow; startup growth; employment growth; production growth; export growth; export performance; institutional finance. (search for similar items in EconPapers)
Date: 2014
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