Startups, both in India and other parts of the world, have attracted considerable traction over the last couple of decades. From government to academic institutions to media, all are overtly focused on startups and entrepreneurship. And for the right reasons, it seems. To lay credence to this is the fact that massive wealth creation happened in the ecosystem, with figures close to $2.8trillion in economic value. This is at par with a G7 economyand is bigger than the annual GDP of the United Kingdom.
Interestingly, the Indian startup space has evolved over the last two decades. While startups got conceived as early as 2000s, the ecosystem was nascent for a long time, as only a few investors were active and there existed only a handful of support organizations, including incubators and accelerators. But the last decade has witnessed significant activity on multiple fronts, including the setup of new startups, influx of global investors and capital inflows, development of regulatory infrastructure, global mergers, acquisitions and globalisation. As the vision for a $5trillion-dollar economy in India is laid out, it is amply evident that start-ups will be one of the strongest force-multipliers of this economy.
For instance, the recent Budget 2020 is replete with favourable instances and policies. Besides an adequate focus on developing the tech infrastructure, which saw investments in machine learning, artificial intelligence and quantum computing, the budget introduced measures aimed at mainstreaming the startup economy. Measures such as deferment of the tax incidence on the Employee Stock Options (ESOP), tax holiday on profits for startups, among others are welcome moves. Further, the fact that these measures are applicable for companies who qualify under section 80-IAC means that it will allow more startups to get incorporated, expand their operations, hire more talent and in turn boost employment prospects. Indiais already home to more than 40,000 startups and 33 unicorns and qualifies as the third largest market for startups.
Nevertheless, India’s policy approach does suffer from certain shortcomings. One,it mostly focuses on bringing more people into start-ups and in turn, encourages need-based rather than opportunity-based entrepreneurship. This translates into putting emphasis on self-employment rather than large and scalable ventures. As our policy prioritises on bringing in more ventures that are past the startup phase, they often fail to hit the spot due to lack of working capital and resources available to the startups.
Second, in general there exists an information asymmetry between the founders of startups and the customers for whom they aim to build products. Given the prevalence of different living environments in India, it is difficult to envisage a startup that would cater to a pan-India audience. Other significant challenges include certain regulatory hurdles and access to the market by startups.
A broader emphasis is often placed on innovation and developing R&D capacities. But, India still suffers from a maze of laws and regulations that stifle an entrepreneur’s options to start a business here. So, to foster the growth of startups, we need to comprehensively create a self-sustaining cluster of innovation economies, for instance, through the Smart City mission and innovation labs. Also, policy reforms that improve economic conditions as well as investments in physical and digital infrastructure are expected to benefit startups. Along with simplification of existing policies, the government should also aim to reduce structural inefficiencies and pave the development of the ecosystem.
With the proliferation of smartphones and technology and the prevalence of a rich demographic dividend, the opportunities in the startup space remain unparalleled. Another catalyst for innovation is urbanization. From a consumerist point of view, this creates a young middle-class with increased spending power and a heightened interest in digital innovation. The large diversity along with challenges in the social sphere such as education, health etc. makes a strong case for a rich economy of products and services. While the opportunities are immense, the challenges are many. Hence, the path to being a global player in technology and innovation would require a combination of government support, funding from both domestic and international firms to enhance India’s position in the startup space.
India Outbound
March 9, 2020
source https://indiaoutbound.org/indias-tryst-with-the-startup-ecosystem/
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