A few high-growth Indian firms have lion's share in output: World Bank

A few high-growth firms (HGFs) continue to have a disproportionately high share in India’s output and sales growth, a report by the World Bank has shown.

Globally, too, the trend is not dissimilar. HGFs account for 8-22 per cent of the total number of firms in developing countries considered for the report. 
 

These include Côte d’Ivoire, Ethiopia, Hungary, Indonesia, and Turkey. 

The HGFs contribute between 49 and 83 per cent of the total change in output.

According to the Organisation for Economic Co-operation and Development, HGFs are firms that employ more than 10 workers (including owners but excluding unpaid workers) and whose employment grows at an average annual rate of 20 per cent or more over a period of three consecutive years. 

The report found that in India 14.3 per cent of all firms were “high-growth”, with their contribution to gross sales increase standing at more than 49 per cent.

Worryingly, in many cases the report found HGFs are the only positive contributors to growth in output, with the rest of the firms in the economy experiencing a decline in sales. This shows that growth has not been broadbased.

The report also points out that engaging in exports may amplify the chances of a firm experiencing high sales growth. While both services and manufacturing firms may benefit, the latter have a 10 per cent higher chance of boosting sales, it says.

The report also mentions that potentially productive firms in Indian manufacturing are unable to obtain financing because of misallocation in land markets, which is the principal form of collateral in business loans. 

However, India scores over other nations in that the age of the firm does not determine its growth possibilities.

HGFs also account for more than 50 per cent of job creation in France, nearly 65 per cent in the Netherlands and close to 90 per cent in Spain. Lack of employment data in India meant that job creation figures are absent.