Startups in India: Breaking the odds
Not too long ago, if one were to tell their peers that they left their high paying jobs in order to start their own company, chances are that they would have been ridiculed and made the butt of many jokes to come. The world of startups in India has seen many changes in these past few years. Once an industry yearning to be taken seriously, startups have now become primary engines for growth and job generation in India. Following the opening-up of Indian markets for foreign investors, the Indian market grew dynamically in the past two decades.
The market matured over the past decade while the country-bred a generation of ambitious young employees who were more than willing to take risks to get where they wanted to be. The government also became more and more supportive of the startup sector. This translated into more opportunities and avenues for startups to grow, along with better financial aid for the budding companies. The trust shown by the government also led to an increase in investments as investors felt much more comfortable investing in a government-backed field.
India has the 3rd largest startup ecosystem in the world, with an annual YoY growth rate of 15%. The startup industry alone was able to generate an estimated 40,000 jobs in 2019. For a country that was shut off to foreign investors not more than three decades ago to grow to become one the largest playing fields of budding companies, a lot of factors had to align perfectly. These contributors are the reason India has often been referred to as the poster child of the emerging market.
Main Contributors to the growth of Startups in India
The main contributors to the startup ecosystem are:
1. The number of skilled workers in India:
India is the most populous democracy in the world. Our country churns out an estimated 9 million graduates every year. This leads to a really high number of skilled workers in India, with a lot of them either looking for a job or looking forward to implementing their own ideas in the form of a legitimate business plan. This contributes to the startup ecosystem in two ways.
(i) A lot of these graduates/post-graduates turn to entrepreneurship, starting their own brands. This adds directly to the number of startups in the country. This is why an estimate of 2-3 tech-based startups are born every day in India.
(ii) A vast majority of these graduates take up employment in one of the many companies in India. This directly adds to the workforce of the startup sector in India.
2. The market:
In a country with a population of 135.26 crore people, even niche products have very large market potential. Ever since economic liberalisation, India has had a very dynamic market. With an annual GDP growth rate of 6.8%, India is one of the fastest-growing economies in the world. This creates a lot of market for startups.
The diversity of the Indian population has also been a major game-changer in the startup industry. While it offers the challenge of marketing products to people of various different languages, cultures, and regions, it also affords these startups the opportunity to grow enough to cater to a huge diversity of people. This trains a lot of these new companies to cater to the global audience, and thus increase their uptake.
Opportunities and Growth Drivers
The opportunities provided to the startup sector by the government has been of paramount importance to its growth in these past few years. This was further added upon by the amount of international attention received by new emerging companies in India in the form of investments and partnership deals.
1. Government Benefits for the Startup sector:
Once the state realised the financial potential of the startup industry, it went out of its way to support the growth of startups in India. The flagship “Startup India” was launched in 2016 to provide a better ecosystem for startups to thrive in. The government left no stones unturned in their attempt to aid growing startups. This was either done in the form of provision of financial aid, the wavering-off of certain taxes and fees, or through the provision of specific services to encourage the birth and growth of startups in India.
A few of these government-provided benefits are:
- Tax exemption for startups:
Section 80IAC allows startups to claim a three year tax holiday, provided that the startups have a scalable business model along with high employment rates and high enough revenue generation. This was done to promote the fast-emerging startup culture in the country.
- Tax exemption for investors:
The government has made provisions to allow startups to avail full angel tax concessions on investments up to Rs 25 crore. Investors may get full exemption on angel tax beyond that amount. This was done in the interest of the startup sector, in order to attract both Indian and foreign investors.
- Provision of Funds:
The government has allocated Rs. 10,000 crore to provide funding access to select startups. They’ve also incentivised banks to offer financial aid for budding companies. The government has also placed provisions to aid startups associated with cybersecurity, drones, clean energy development, waste management, etc.
- Patent and Trademark Concessions:
In an effort to support startups with original product ideas, the government pays for all the facilitator fees. This leaves only the statutory fees to be paid by the startups. The government has also taken steps to reduce the average time it takes to file a patent from 4-7 years to 18 months.
- Aid in Research and Development:
The prime minister recently announced the opening up of 5 new DRDO labs. This was another such development in the line of opening research and development labs in order to provide research-based aid to startups in the country. India is the top innovation destination in Asia and ranks second in the world with the highest increase of contribution to high-quality scientific research. This translates to paramount aid to tech-based startups looking to make it big globally.
2. International Interest and Aid:
India is one of the top markets for several countries to invest in. The number of emerging startups in India is almost unmatched. This, along with government-provided exemptions to foreign investors, makes India the perfect place for foreign angel investors to invest in. The countries that are most active in investing in the Indian startup ecosystem are Israel, Netherlands, Australia, Japan, England, France, and China. China alone has invested around Rs 300 crores into Indian startups in the last five years.
The Indian startup ecosystem has faced an economic boom in the past two decades and will continue to grow in the coming years, as India establishes its position as the golden bird of startups. The world of startups has been extremely complex, filled with opportunities at every step for those brave enough to that step. It’s robust and evolving mechanics is only matched with the sheer amount of interest it’s garnering around the world.
The state has made sure to back our startup industry at every point in this journey and this has gone far in establishing India as the third-largest startup ecosystem in the world, with a 40% compound annual growth rate over the past five years. Given all of this information, maybe Vineet Aggarwal, founder of the Cerule Group, wasn’t wrong in calling India the poster child of the emerging market.