Startup Ecosystem in India

In Context 

The startup ecosystem which has been in overdrive for the past few years is now showing signs of weakness. 

About Startup Ecosystem in India

• India has the 3rd largest startup ecosystem in the world; expected to witness YoY growth of a consistent annual growth of 12-15%.
• The pace of growth in the startup ecosystem has increased to 15% year-on-year in 2018, while the growth of the number of incubators and accelerators has grown to 11%
• Significantly, the number of women entrepreneurs stood at 14%, up from 10% and 11% in the previous two years.
• Bangalore has been listed within the world’s 20 leading startup cities in the 2019 Startup Genome Project ranking. 
  • It is also ranked as one of the world’s five fastest growing startup cities.
• The Indian startups have gone on to raise sizable ticket sizes from various global and domestic funds. 

Drivers of Startup Ecosystem 

• Corporate Connect : 
  • Enterprises are realising the disruptive potential of start-ups and are thus, partnering/investing in them. Examples of corporate support:
    • Facebook in partnership with Startup India disbursed cash grants of $50,000 each to the top 5 selected startups
    • Microsoft Ventures Accelerator Program in India has recently picked up 16 startup
• Availability of a large talent pool seeking to be entrepreneurs: 
  • India has recognized the need to develop innovation and incubation centres for its large student community to foster innovation and entrepreneurial mindset through academic institutions. 
• Favourable regulatory environment: 
  • The Indian government has been playing a crucial role in facilitating the growth of early-stage startups through the implementation of progressive policies and creating relevant infrastructure.
  •  The Government of India is understanding the value of working with disruptive innovators across the value chain and using their innovations to improve public service delivery.
• Startup ecosystems built by corporations: 
  • Established corporates who lack innovation capacity and agility, and nimble early-stage startups who lack cash for growth and networks for market access and product/service launches, provide a unique and scalable platform for a marriage for multiplied wealth creation. 

Challenges

• Tighter financial conditions impact both fundraising efforts and valuations and changes in the dynamics of private markets will also have a bearing on public markets.
• Valuations of some companies in sectors more tightly regulated, more directly influenced by government policies. 
• Losses :
  • Paytm’s losses stood at Rs 2,396 crore in 2021-22, while for Zomato and PB Fintech (PolicyBazaar) losses were Rs 1,222 crore and Rs 832 crore respectively. 

• Presence of bureaucratic red tape and the corruption which goes into the set-up process.
• The reports of over-regulation have impeded the growth of start-ups and there are relatively fewer provisions of adequate incentives.
• More famous start-ups have seen multiple rounds of investment, other lesser-known start-ups have shrivelled due to lack of investment and capital.
• Inherent bias in the consumer mindset in favour of services and products offered by foreign technology giants, which translates to lesser acceptance and lesser opportunities for the start-ups in India.
• It is uncannily difficult to start a business in India and myriad laws and regulations
• Capital and access to capital has been a perennial problem for startups.
• Indian startup ecosystem facing the brunt of the Russia-Ukraine war, leading to a slowdown in their capital raising ability.
• The global capital supply fuelling startup funding faces challenges from fiscal and monetary policy normalisation.

Read our detailed article on Monetary Policy in India: Meaning, Types, Tools & More

Government’s Efforts to Develop Startup Culture 

• Atmanirbhar Bharat: Digital India Atmanirbhar Bharat App Innovation Challenge.
• Make in India: Promotion to indigenously made goods and services under the initiative.
• Startup India
  • Under the Startup India Initiative launched in 2016, the government has endeavoured to simplify complex legal, financial and knowledge requirements in an effort to encourage participation of early-stage potential startups. 
• Stand-Up India Scheme – launched in 2016 – aims to promote entrepreneurship at the grass root level for economic empowerment and job creation. 
  • The objective of this scheme is to facilitate bank loans to at least one Scheduled Caste (SC) or Scheduled Tribe (ST) borrower and at least one woman borrower per bank branch to enable them to participate in the economic growth of a nation.

Read about Sixth Anniversary of Stand Up India

• Funds of Funds for Startups: About US$ 1.33 Bn approved by the Cabinet and established by the Department for Promotion of Industry is being managed by SIDBI (Small Industries Development Bank of India) to provide a much-needed boost to the Indian Startup ecosystem.
• Aspire – A Scheme for Promotion of Innovation, Rural Industries and Entrepreneurship – was launched by the Ministry of Micro, Small and Medium Enterprises. It aims to set up a network of technology centres and to set up incubation centres to accelerate entrepreneurship and to promote start-ups for innovation in agro-based industries.
• Atal Innovation Mission – Launched by NITI Aayog as a flagship programme, it aims to promote a culture of innovation and entrepreneurship in India.
• Project Chunauti: It is a start-up challenge under the Next Generation Incubation Scheme (NGIS) initiative. Selected startups are provided human resources, legal, intellectual property rights (IPR) and Patent matters guidance as well as other incubation and mentorship facilities.
• National Initiative for Developing and Harnessing Innovations (NIDHI): It is an umbrella programme for nurturing ideas and innovations (knowledge-based and technology-driven) into successful startups.
• Other Reforms 
  • Reforms such as opening up sectors like space-tech for private participation, tax holidays for startups fulfilling certain eligibility criteria such as annual turnover and year of incorporation to tide over working capital requirements, and creation of state-run incubators, among many, are lowering the odds of establishing successful startups and helping them grow. 

Conclusion and Way Forward 

•  The startups can play a key role to socialise and democratise the availability of healthcare across the globe at a time when the world is grappling with the coronavirus pandemic.
• Entrepreneurs should also focus on strengthening the make in India programme, innovating in India and mentoring young startups.
  • Venture capitalists and financers can also play a key role in mentoring young startups across the country particularly in Tier 2 and 3 towns.
• As the world is facing successive waves of this pandemic and concerns related to the Russia-Ukraine crisis , our entrepreneurs must start thinking of making our startups more resilient.
• Startups can play a very important role to socialise and democratise the availability of healthcare across the world
• Five mantras have been suggested and these are  Share, Explore, Nurture, Serve, and Empower (SENSE)”.