"If the only reason you are getting revenues, not profit, is because you are selling based on 50 per cent discount, it can't be viable in the long run," he said.
He was quick to acknowledge that many businesses are in different stages of their life-cycle with some trying to establish the viability.
"All these businesses are trying to establish viability, some are still being financed in a big way," he said, adding that it is natural for some of them not to work which will lead to shutting down the business.
The remarks come amid dwindling valuations of some successful Indian startups, which are being partly attributed to the high stress on discounting in the business model. Many of the startups depend on capital injections from venture capital funds and some have also closed down.
Also Read
"I think this (shut down) is a natural process and we should not stand in the way and lament too much," Rajan said, making a strong case for policies which will make it easier for startups to exit so that resources can be used productively.
Welcoming that it has become "reputable" for being an entrepreneur, Rajan made a plea for being resilient, saying "the enterprise started by an entrepreneur can fail, the people should not fail".
He said the conditions for starting up are improving by the day on the back of interventions by the government and regulators which have upped the infrastructure and logistics support.
However, there is a lot which needs to be done, he said, flagging skilled talent as a key prerequisite for the country.
He also said that the bankers while dealing with stressed loans with small businesses should also understand that the smaller firms do not have the same mettle to take every case to a court as a big business does.
"I said easy exit (for startups) but it should not be unfair exit. With respect to small firms, creditors often have draconian powers which large firms can limit in courts. Something like Sarfaesi. A large firm has a better way of dealing with it in the court than a small firm has.