India is on the path to becoming a start-up nation, with a growing number of entrepreneurs transforming ideas into successful businesses. Over the past decade, the country has seen a rapid rise in start-ups across various sectors like technology, healthcare, and finance. The government’s supportive policies, along with access to funding and a young, tech-savvy population, have created a fertile environment for innovation. Making India a start-up hub is not just about boosting the economy but also about fostering creativity, job creation, and solving real-world problems through innovative solutions.
Tags: GS- 3, Employment– Growth & Development– IT & Computers– Mobilization of Resources
Context:
- India has the third largest startup ecosystem in the world, with over 140,000 registered startups and a new unicorn appearing every 20 days.
- To sustain this growth and achieve a developed India by 2047, effective integration of education, employment and entrepreneurship is essential.
- If 5% of Indian graduates become entrepreneurs, 50,000 new jobs will be created every year, creating millions of jobs.
Current state of India’s startup sector:
- Large ecosystem and growth:
- India ranks third globally with over 1.4 million startups registered under the Department of Industry and Domestic Trade Promotion (DPIIT) India’s ecosystem.
- In the last 7-8 years, a unicorn has appeared every 20 days, indicating the region’s capacity for entrepreneurship and growth.
- Job creation:
- The start-up has directly created over 1.55 lakh jobs.
- By 2023, 3.9 million jobs will be created, representing an annual growth rate of 46.6% and an increase of 217.3% over five years.
- Economic Contribution:
- Startups, and companies, contributed $140 billion to India’s GDP in FY23, accounting for nearly 4% of total GDP.
How India’s startup scene is evolving:
- Digital Infrastructure Revolution:
- With over ₹20 lakh crore in transaction value by August 2024, Unified Payment Interface (UPI) has played a major role in this growth.
- Coupled with the lowest data charges in the world (₹6.7 per GB by 2023), startups now have easy access to more customers.
- Supportive government policies:
- As of June 30, 2024, 1,40,803 start-ups have been accredited, providing tax benefits and compliance accreditations.
- ₹7,980 crore has been invested in 99 Alternative Investment Funds (AIFs) by December 2022 under the Fund of Funds Scheme (FFS).
- Growing talent pool:
- India’s young population (65% under 35) and 1.5 million engineering graduates form a huge talent reservoir for start-ups every year.
- Maturity Financing Ecosystem:
- In H1 2024, Indian startups raised $4.1 billion, up 4% from H2 2023. Growth in the domestic economy and interest from global investors has led to a range of funding streams
- Industry-specific opportunities:
- The aerospace technology sector saw an investment of US$124.7 million by 2023.
- The successful launch of Skyroute Aerospace’s Vikram-S rocket by 2022 has opened the door for private players in space
- Growing domestic market:
- India’s expanding middle class, which is expected to add 140 million households by 2030, presents huge opportunities for start-ups Estimated to be worth around US$100 million by 2025. 188 billion dollars
- Corporate-Startup Partnerships:
- Companies like Reliance Industries and Tata Digital are investing in start-ups, as seen in Tata’s acquisition of 1mg, which highlights the potential for strategic partnerships.
Compressed Roadblocks to Indian Startup Growth:
- Regulatory Hurdles: Complex regulations, like the debate over Ola and Uber under the Motor Vehicles Act and compliance burdens from the Digital Personal Data Protection Act, 2024, create operational challenges for startups.
- Talent Retention: Despite many graduates, 60% of Indian tech professionals are open to relocating abroad, leading to competition with MNCs and overseas opportunities, affecting startups’ talent retention.
- Market Saturation and Competition: Overcrowded sectors, such as edtech, face intense competition and reduced margins, with firms like BYJU’s and Unacademy cutting jobs post-pandemic.
- Infrastructure Gaps & Uneven Funding: Rural internet penetration is only 37%, limiting market potential. Women-led startups also face a significant funding gap, despite urban penetration of 71%.
- Scaling Issues: 90% of startups fail within five years due to challenges in scaling operations and expanding to new markets.
- Lack of Deep Tech Innovation: India spends just 0.7% of GDP on R&D, lagging in deep tech despite government incentives like the USD 10 billion semiconductor scheme.
- Exit Challenges: The number of IPOs dropped in 2023, with ₹41,095 crore raised, marking a 30% decline from the previous year, limiting viable investor exit options.
Measures to Enhance the Startup Sector in India:
- Decentralized Startup Hubs: Develop tier-2 and tier-3 cities into startup hubs with targeted infrastructure and incentives, adopting a hub-and-spoke model similar to Mohali’s successful ecosystem expansion.
- Enhanced Tax Incentives: Extend tax benefits for startups from three to five years and introduce additional breaks for deep-tech startups, inspired by Israel’s tax incentives for tech companies.
- Robust IP Protection Framework: Streamline patent processes and introduce fast-track examinations for startups, with an IP awareness program modeled on Japan’s accelerated patent examination system.
- Government Procurement Boost: Mandate a percentage of government procurement from startups, similar to the US’s 23% federal contracts for small businesses, opening a significant market for startups.
- Sector-Specific Incubation Centers: Establish incubation centers focused on sectors like spacetech, biotech, and cleantech, modeled after the successful T-Hub in Hyderabad.
- Startup-Academia Collaboration Platform: Create a national platform to facilitate collaborations between startups and academic institutions, aiming for 1,000 collaborations annually by 2025.
- Enhanced Funding Access: Expand the Fund of Funds for Startups (FFS), create sector-specific funds, and introduce a credit guarantee scheme for startup loans, inspired by the UK’s Enterprise Finance Guarantee.
- Digital Infrastructure Push: Accelerate BharatNet implementation for high-speed internet connectivity in villages by 2025, inspired by Estonia’s e-Residency program to foster a digital business environment.
Conclusion:
To sustain and enhance India’s startup sector, addressing regulatory challenges, promoting collaboration between academia and industry, and ensuring equitable access to funding and infrastructure are crucial. By integrating these elements, India can harness its entrepreneurial potential and move towards becoming a developed nation by 2047
UPSC Previous Year Question (PYQ)
Prelims
Q:1 What does venture capital mean? (2014)
- A short-term capital provided to industries
- A long-term start-up capital provided to new entrepreneurs
- Funds provided to industries at times of incurring losses
- Funds provided for replacement and renovation of industries
Ans: (b)
Source: IE
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