India has moved from debating jobs to promoting entrepreneurs. But the more consequential question is not who enters business, but who succeeds once they do.
Evidence from India’s informal sector, where nearly half the workforce is self-employed, points to a clear pattern. Firms owned by Scheduled Tribes (ST) are about 45 percent less productive than those owned by other social groups, while Scheduled Caste (SC)-owned firms are roughly 28 percent less productive. These are not marginal differences. They reflect a structural divide in how firms perform within the same economy.
The implication is clear. Caste does not merely accompany economic life. It shapes how firms compete, grow, and endure.
Where the Gap Runs Deep
This gap is not confined to averages. It extends across the entire distribution of firms.
Evidence from over one million informal enterprises across 2010–11, 2015–16, and 2023–24 shows that disadvantaged firms lag at typical levels of performance, fall further behind among smaller enterprises, and continue to underperform even among relatively better-performing firms.
At typical levels of performance, ST-owned firms remain substantially less productive than others, with sharper differences among smaller enterprises. But the gap does not close among more successful firms. Even those that perform relatively well continue to trail comparable businesses.
The gap is not episodic. It is pervasive.
That persistence makes the mechanism harder to ignore.
The Anatomy of the Gap
Part of the answer lies in differences in firm conditions. Disadvantaged firms are more likely to operate at a smaller scale, with about 94 percent of SC and ST enterprises functioning as own-account units without hired workers, compared to 84 percent among others. They are more likely to be rural, less likely to be registered, and far less likely to use basic technologies such as computers or the internet. These characteristics reflect thinner market access and weaker organisational capacity, both associated with lower productivity.
But differences in conditions do not fully account for the divergence.
This points to two distinct mechanisms: differences in firm conditions, and differences in how markets reward those conditions. When firms are compared on similar characteristics such as size, location, registration status, and technology use, substantial differences remain. ST-owned firms still exhibit roughly 30 percent lower productivity, and SC-owned firms around 12 percent lower. Comparable firms do not generate comparable outcomes.
For SC-owned firms, about 60 percent of the productivity gap is explained by differences in firm conditions. The remainder persists even after accounting for these factors. For ST-owned firms, this unexplained component is larger.
The constraint is layered. Disadvantaged firms start with weaker endowments, but they also operate in environments where similar capabilities yield lower returns. The gap reflects both weaker starting points and lower returns on similar capabilities.
Why This Matters for Policy Now
This changes the terms of the policy debate.
Current policy largely assumes that expanding participation through credit, skilling, or start-up support will translate into mobility. But when comparable firms generate different outcomes, increasing the number of entrepreneurs will not by itself reduce inequality.
The costs are not only distributive. Persistent productivity gaps point to misallocation. Firms that could be more productive remain constrained, and the economy forgoes output that stronger market matching might otherwise generate. Small-firm-led growth, under these conditions, delivers less than it could.
The idea of entrepreneurship as a pathway to mobility also looks less settled. Entry into business is often treated as an escape from labour market discrimination. But uneven outcomes within product and supplier markets mean that the move into enterprise does not fully escape the structures it is meant to bypass.
That is why the issue cannot end with participation.
Rethinking Policy: From Firm Support to Market Design
The implication for policy is immediate. The focus must shift from enabling entry to shaping how firms connect to markets.
Access to buyers, suppliers, and business networks determines not just whether a firm survives, but how far it can grow. Disadvantaged entrepreneurs are less likely to be embedded in these networks, limiting their ability to secure better contracts, scale production, or move into higher-value segments. Procurement design, value chain integration, and market platforms that reduce dependence on closed networks therefore matter more than standard firm-support measures alone.
This also requires a change in what policy counts as success. The number of enterprises created, or the volume of credit disbursed, says little if firms with similar characteristics continue to achieve sharply different outcomes. A more meaningful benchmark is whether comparable firms are able to achieve comparable productivity.
Better measurement must support that shift. Regular, disaggregated data on enterprise performance by caste, gender, and location can make these gaps visible and allow policy to track whether interventions are altering outcomes rather than merely expanding participation.
The Limits of Capability Without Equity
India’s entrepreneurial transition reframes the challenge of inclusion. The question is whether markets deliver comparable outcomes for comparable firms.
A more productive economy will require more than more firms. It will require markets that translate similar capabilities into similar returns. Until that changes, productivity and mobility will remain unevenly distributed.