Startup contribution to economy projected to reach $1 trillion by 2030

From FY16 to FY23, startups contributed 10 to 15 per cent to India’s gross domestic product (GDP) growth, according to KPMG’s whitepaper, Exploring India's Dynamic Start-up Ecosystem.

 

In FY23, startups contributed about $140 billion to the economy, a figure projected to reach $1 trillion by 2030, according to the whitepaper unveiled by consulting company KPMG at the TiE Global Summit.

 

India’s startup ecosystem has grown significantly over the past decade due to a vast consumer market, supportive government policies, a surge in venture capital (VC) funding, talent availability, and the younger generation's entrepreneurial spirit. A strong network of incubators and accelerators further supports startups’ growth.

 

 

As of June 2024, the Department for Promotion of Industry and Internal Trade (DPIIT) recognised 1,40,803 startups, leading to the creation of over 15.5 lakh direct jobs. DPIIT has also recognised startups from 56 diverse sectors. As of October 3, 2023, IT services accounted for the highest number of startups at 13 per cent, followed by healthcare and life sciences at 9 per cent, and education at 7 per cent.

 

India’s startup ecosystem, valued at over $349 billion, ranks third globally in unicorn count as of May 2024.

 

Tier-II and Tier-III cities 

The increasing significance of tier-II and tier-III cities as startup hubs in India is a noteworthy trend. This is driven by the need to solve local problems, diverse funding options, improved infrastructure, robust digital payment systems, and digital-first business models, all of which have attracted investors.

 

While Bengaluru, Delhi, and Mumbai remain traditional unicorn hubs, securing over $8.1 billion in funding in CY23, cities like Pune, Chennai, and Hyderabad are emerging as key players in the startup ecosystem.

 

This growth is supported by prestigious educational institutions, a rich talent pool, strategic locations, and government initiatives. The startup growth rate in tier-II cities has seen a 15 per cent upsurge. The FY24 Economic Survey revealed that over 45 per cent of new startups now originate from tier-II and tier-III cities. Drivers include lower operational costs, access to untapped markets, evolving consumer preferences, and less saturated competitive landscapes. Funding in these cities has surged, reflecting investor confidence.

 

While Delhi, Gujarat, Maharashtra, and Karnataka account for half of India’s startups, significant growth in industries such as green technology, renewable energy, and IT services has been observed in Bihar, Assam, and other states from 2021 to 2023.

 

Between 2022 and 2023, Bihar's startup sector expanded by 54.6 per cent, fuelled by young entrepreneurs and the Bihar Startup Policy, which funded 324 startups.

 

As a leading maize producer, Bihar’s focus on ethanol production, electric vehicles (EVs), and its 2024 climate strategy spurred the growth of green technology startups, making it the fastest-growing sector in the state between 2021 and 2023.

 

The northeastern region has seen substantial growth in construction startups since 2020, averaging 102.6 per cent year-on-year, driven by a focus on improving logistics infrastructure for better connectivity.

 

The region’s strategic location adjacent to several Asian countries offers significant trade potential. The North East Venture Fund (NEVF), which has supported 37 startups since 2017, further bolsters this growth.

 

The Government of India (GoI) has played a crucial role in supporting businesses in lower-tier cities and rural areas by offering incentives such as lower land rates, subsidised office spaces, and tax rebates. Additionally, the establishment of innovation hubs, startup incubators, streamlined business procedures, and improved transport links has created a vibrant ecosystem for startups.

 

VC funding 

VC funding has been instrumental in the growth of Indian startups, witnessing a 43 per cent year-on-year increase from January to July 2024. This represented 7 per cent of the total globally announced VC funding during that period.

 

EVs and robotic surgeries 

The Indian startup ecosystem is rapidly expanding across various sectors, such as fintech, automotive, and healthtech, indicating broader investment opportunities.

 

By 2029, the Indian EV market is expected to be worth $113 billion. This will necessitate the creation of at least 1.3 million charging stations to support the rapid growth of EVs, presenting vast opportunities for startups.

 

The fintech sector, with over 6,386 startups in the past decade, has an adoption rate of 87 per cent, surpassing the global average of 67 per cent.

 

Healthtech startups offering services such as telemedicine, robotic surgeries, and artificial intelligence (AI)-based disease detection have also seen a surge in investments.

 

Foreign investments 

Foreign investments contribute significantly to deep-tech startup funding.

 

India attracts foreign investments from countries such as the US, Singapore, the EU, and Mauritius due to its large domestic market, infrastructural development, digitalisation, and strong economic growth.

 

Between FY23 and FY24, Singapore, the US, Mauritius, the Netherlands, and Japan contributed 70–75 per cent of foreign direct investment (FDI) equity inflows, driven by relaxed FDI rules.

 

In FY24, India received the highest FDI equity inflow from Singapore ($11.8 billion), followed by Mauritius ($8.0 billion), the US ($5.0 billion), the Netherlands ($4.9 billion), Japan ($3.2 billion), and the UK ($1.2 billion). This rise in FDI inflow highlights India’s appealing economic growth and vibrant startup ecosystem.

 

KPMG’s report stated that India’s startup ecosystem is poised for exponential growth in the next five to seven years, fuelled by favourable conditions uniquely positioned to foster innovation and entrepreneurship. Key to this growth is India’s large, young, and tech-savvy population that is swiftly joining the formal workforce. India is expected to have a labour force of 535 million by 2030, offering a ready pool of talent and consumers for innovative solutions.