Sept. 18, 2024
Startup Surge: Fueling India's Growth
Context: Making India a start-up nation
Current Status of India's Startup Sector
• Ecosystem Size and Growth: India ranks third globally with over 1.4 lakh registered startups.
• Job Creation: In 2023 alone, Startups created an impressive 3.9 lakh jobs, representing a remarkable 46.6% year-on-year increase and a substantial 217.3% growth over the past five years.
• Economic Contribution: In FY23, startups and their corporate counterparts injected a significant USD 140 billion, representing nearly 4% of India's GDP.
How India's Startup Sector is Booming?
• Digital Infrastructure Revolution: The widespread adoption of digital technologies, spearheaded by initiatives like Digital India, has created a fertile ground for startups. This digital backbone, coupled with the world's lowest data costs (averaging ₹6.7 per GB in 2023), has enabled startupsto reach a vast customer base efficiently.
• Supportive Government Policies: The Indian government's proactive stance through initiatives like Startup India and Stand Up India has been instrumental. As on 31st December 2022, under the Fund of Funds Scheme (FFS) for startups, Rs. 7,980 crore has been committed to 99 Alternative Investment Funds (AIFs) .
• Burgeoning Talent Pool: India's demographic dividend, with 65% of its population under 35, provides a vast talent pool for startups.
• Growing Domestic Market: With a steady GDP growth rate, India will have 140 million new middle-class households by 2030 according to the World Economic Forum, presenting a massive opportunity for startups.
• Corporate-Startup Synergies: Increased collaboration between established corporates and startups has created win-win situations.
Roadblocks to the Growth of Indian Startups
• Regulatory Hurdles: The complex and sometimes ambiguous regulatory environment poses significant challenges for startups. For instance, the recent debate over the categorization of app-based cab services like Ola and Uber under the Motor Vehicles Act has created operational uncertainties.
• Talent Retention Hurdle: While India produces a large number of graduates, retaining top talent remains a challenge. The startup sector faces competition from established MNCs and the lure of overseas opportunities.
• Infrastructure Gaps and Uneven Funding: While India has made significant strides in digital infrastructure, substantial gaps remain. Even in urban areas, internet penetration stands at 71%, leaving a significant portion of the population unreached.
• Lack of Deep Tech Innovation: While India excels in creating innovative business models, it lags in deep tech innovations. R&D spending in India remains low at 0.7% of GDP in 2023, compared to 3.5% in the US.
• Exit Challenges: The Indian startup ecosystem still struggles with providing viable exit options for investors. There have been 46 IPOs in 2023, raising a cumulative Rs 41095.36 crore. This marks a 30% decline from Rs 59301.7 crore raised through 40 IPOs in 2022.
Measures to Enhance the Startup Sector in India
• Streamlined Regulatory Sandbox: Implement a comprehensive regulatory sandbox across sectors, expanding on the success of RBI's fintech sandbox.
• Targeted Skill Development Programs: Launch sector-specific skill development initiatives in collaboration with industry leaders and academia.
• Decentralized Startup Hubs: Develop tier-2 and tier-3 cities as startup hubs through targeted infrastructure and incentives.
• Enhanced Tax Incentives: Extend and expand tax benefits for startups beyond the current three-year limit to five years for all recognized startups.
• Government Procurement Boost: Mandate a certain percentage of government procurement from startups, similar to the existing 25% procurement requirement from MSMEs.
• Digital Infrastructure Push: Accelerate the implementation of initiatives like BharatNet to ensure high-speed internet connectivity across all villages by 2025. This is crucial for startups to reach untapped markets.
Conclusion
India's startup ecosystem has shown immense potential, contributing significantly to economic growth and job creation. However, to sustain and accelerate this momentum, it is essential to address regulatory hurdles, foster deeper collaboration between academia and industry, and ensure equitable access to funding and infrastructure. By integrating education, entrepreneurship, and employment, India can unlock its entrepreneurial potential and move closer to becoming a developed nation by 2047.