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India’s Start-up Ecosystem Is All Set To Challenge Its Western Counterpart

In conversation with BW Disrupt, Dr Apoorva Ranjan Sharma, Co-Founder and Managing Director, 9Unicorn discusses about India’s Start-up Ecosystem and challenges faced in West.

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The start-up ecosystem in India is thriving, especially across sectors like IT, e-commerce and fintech. In its report titled, ‘Indian start-up ecosystem - approaching escape velocity’, NASSCOM noted that more than 1,200 tech-based start-ups came into being the last year, taking the total number of 7,200 start-ups. Having emerged as one of the largest start-up hubs in the world, the country has caught the eye of VCs and deep-pocked global investors alike. According to the same NASSCOM report, after 2017, investment into start-ups increased by over 100 per cent, from USD 2.03 billion in 2017 to USD 4.2 billion in 2018. Industry estimates further suggest that ten Indian start-ups gained the Unicorn status in 2018 alone, backed by the likes of SoftBank, Alibaba and Naspers. While these figures are certainly impressive, India’s star-ups continue to face obstacles such as lack of sustainability, fund constraints, unfavourable policies and limited availability of affordable marketing channels. Additionally, angel investors, HNIs and even established entrepreneurs are forced to undergo a lengthy procedure while making investments into up-and-coming companies. 

Funding shortage: A major hurdle to business and product innovation

Being marquee volume-driven consumer market, India has recently experienced the emergence of innovative, tech-based start-ups that are driving the growth of existing businesses in the country. These new-age companies are aiming for global leadership in terms of innovation. In fact, India moved from 81st rank in 2015 to 52nd in 2019 in the Global Innovation Index. Unfortunately, innovation remains a challenge in the domestic start-up ecosystem. 

A recent study, ‘Entrepreneurial India’, by IBM Institute for Business Value and Oxford Economics revealed that 90 per cent of Indian start-ups die out within the first five years. And, the most common reason cited in the report is the lack of technological innovation. Of the venture capitalists surveyed, 77 per cent believe that a sizable chunk of home-grown start-ups emulate successful global ideas and fail to come up with unique business models. But, when we deeper into the matter, it’s evident that start-ups in India don’t get the funding support they require to innovate. Even though India has the third-largest number of incubators in the world, they make start-ups undergo a very competitive application process. As a result, many companies find themselves with no support, failing to run a sustainable business, let alone come up with innovative products/services. Moreover, the Indian government’s investment in R&D is a measly 0.7 per cent of GDP, and most of it goes into sectors like space, defence and energy. This explains why the country has not been able to produce meta-level start-ups like Amazon, Google or Facebook. Other reasons for failure include lack of skilled workforce and mentorship programmes, and poor business ethics. Therefore, the country is still playing catch up with its Western counterparts. Notwithstanding the substantial progress, India has made in the past decade, it is still in infancy when compared to Silicon Valley. 

Breaking the barriers: One initiative at a time

To address this multitude of challenges plaguing the country’s start-up domain, the Government of India has been making relentless efforts over the years. In 2014, Prime Minister Narendra Modi even decided to dedicate an entire ministry (Ministry Of Skill Development and Entrepreneurship) towards the development of new businesses. Moreover, India has witnessed the launch of various schemes, incubator programs and workshops across its states in recent times. Aimed at strengthening the very foundation of the Indian start-up ecosystem, these initiatives have benefited a number of small and medium enterprises. 

To further its commitment towards Indian start-ups, the Modi-led National Democratic Alliance (NDA) government also declared a slew of incentives during the Union Budget 2019-20 announcements to "release the entrepreneurial spirit". These include the extension of the 'Stand up India' scheme, the launch of a new TV program exclusively for start-ups, reduction of GST rates and income tax rates for EV manufacturers and buyers in the country, and FDI norm relaxation in start-ups sectors like e-commerce, grocery and food delivery. Finance Minister Nirmala Sitaraman also proposed a series of steps to resolve the angel tax woes of start-ups and provide relief from income-tax scrutiny. If implemented, startups and investors who file requisite declarations will no longer be subjected to any kind of scrutiny in respect of valuation of share premium. Additionally, the minister noted that the Central Board of Direct Taxes (CBDT) would make special administrative arrangements to accelerate the pending assessments of start-ups. 

The way ahead: Will India be on par with Silicon Valley?

Backed by government-led initiatives and support from private sectors, India’s rank has gone up in the Ease of Doing Business, Global Innovation Index, and Global Competitiveness Index. Opening more doors for entrepreneurs and investors, the aforementioned changes are expected further propel the growth of India’s dynamic start-up community. Especially, the push given to SMEs, MSMEs and women entrepreneurs is likely to provide a major impetus to the entire start-up ecosystem. Companies like Ola and OYO are giving a tough competition to global players like Uber and AIRBNB, and more Indian start-ups are coming forward to keep the momentum going. While India aspires to be equal to Silicon Valley, the country is already on its way to become a breeding ground for start-up innovation, creating a niche for itself. 

Disclaimer: The views expressed in the article above are those of the authors' and do not necessarily represent or reflect the views of this publishing house. Unless otherwise noted, the author is writing in his/her personal capacity. They are not intended and should not be thought to represent official ideas, attitudes, or policies of any agency or institution.

Apporva Ranjan Sharma

Co-Founder and Managing Director, 9Unicorn

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