India's start-up story remains robust

India has experienced an unparalleled start-up growth in the last six years, from recognised start-ups at just over 400 in 2016 to a whopping 92,683 as on February 28, 2023. Currently, the start-up ecosystem contributes 2.5-3 per cent of India’s GDP, which is expected to increase to 4-5 per cent by 2025. This growth has penetrated across sectors.

Recent news reports of reduced funding for start-ups should not be seen as a sign of any slump in optimism. This is the time of consolidation for the start-up sector. Every start-up ecosystem goes through a few cycles, which help realign the priorities of management, its board and the investors. The present period, where we are seeing ebb in funding, is helping most of the start-ups to realign their priorities towards long-term sustainability with operational profitability. This would prove to be a boon in the medium to long term, as the start-ups are balancing valuation vis-à-vis profitability metrics. The ecosystem would experience rationalisation of valuations in the current period, with funding expected to gradually increase from Q3 2023-24.

Thus, the current dip in funding in the Indian start-up ecosystem is part of a cycle and is only temporary in nature. According to the “NASSCOM Tech Start-up Report 2021”, the Indian start-up ecosystem would have 37,000 tech businesses, 180-200 unicorns, and a total worth of $600-700 billion by 2025.

The Centre has recognised start-ups spread across an unprecedented number of 50-plus sectors, including aerospace and defence, interior design, green technology, Indic languages, pet and animals, social impact and sports. Sectors such as IT, healthcare and life sciences, education, agriculture, and food and beverages each have registered over 4,500 start-ups. The Alliance of Digital India Foundation, a policy think tank working for digital market start-ups, shared that the Indian start-up story has not been written in a day and has involved constant planning, involvement and sustained efforts from the government.

The Start-up India Action Plan 2016, launched in January 2016, provided the groundwork for government assistance, programme and tax incentives, thus fostering innovation and motivating entrepreneurs in the nation with the goal of creating a thriving start-up ecosystem. It has resulted in over 9 lakh direct jobs generated by recognised start-ups collectively. The Fund of Funds for Start-ups, launched with a capital provision of Rs 10,000 crore, has till date committed more than Rs 7,980 crore to 99 alternative investment funds. Similarly, the Start-up India Seed Fund Scheme has benefitted 137 incubators, by approving Rs 495.25 crore.

The real game changer has been the Atal Innovation Mission, which created the pathways for the future generation of entrepreneurs, actively engaging 7.5 million students through multiple Atal Tinkering Labs, supported by 2,900+ startups. On the regulatory side, since 2016, the government has implemented over 55 reforms to enhance ease of doing business, to raise money more quickly, and lighten the regulatory burden on the start-up environment. The recent Budget has announced a reduction in surcharge rate, an Agricultural Accelerator Fund and setting up of Skill India International centres as well.

India’s e-commerce market is single-handedly predicted to be worth $200 billion by 2026, thanks to the Digital India vision of the government that helped in greater penetration of internet usage, digital payments and smartphones. Many future sectors, including biotech, quick service restaurant, electric vehicle (EV) market, green energy, health and wellness, blockchain and IT have great potential and will lead another huge cycle of funding and investments in the near future. The market for EVs, among start-ups, is expanding. Start-ups are developing a range of technologies, such as high-tech batteries, charging stations, EV parts and self-driving technology. By 2030, it is anticipated that the Indian EV market will generate 50 million indirect jobs in addition to 10 million direct jobs. According to research by early-stage venture capital firm 3one4 Capital, start-ups will help create jobs for 3.25 million people by 2025.

While the Centre has done a great job in facilitating the growth of the start-up ecosystem, a few more actions like the “deferred tax liability” provision introduced in Budget 2020 should be extended to all start-ups for promoting the sector in India. Also, the mandatory condition of IMB certification may be relaxed, so that all start-ups can take benefit from this “deferred tax liability” norm on ESOP (employee stock ownership plan).

Funding is only one of the parameters of evaluating a start-up’s performance. The exuberance that the Indian youth is showcasing to find innovative approaches to existing problems — and which is reaching far corners of the country rather than being limited to metro cities — is the real metric for accessing start-up future in India. In 2019, the Centre had set a goal of 50,000 start-ups by 2024. The goal was achieved by 2022.

The Competition Commission of India’s recent decision of directing Google to unbundle the app store from other apps and allowing third-party apps for payments will also open the door for many Indian start-ups to enter into the digital market app space, previously dominated by the antitrust practices of a few bigtech firms.

India remains one of few economic bright spots in the world and the start-up sector remains as vibrant as ever.

The writer is director, Alliance of Digital India Foundation