Will Indian startups and investors face severe headwinds, and find it difficult to grow and prosper? 2023 has seen lay-offs, crashing valuations and a huge drop in funding from close to $40 billion in 2021 to $25 billion in 2022.
Let us take a look back: since the launch of the startup movement in January 2016, India has seen a nine-time increase in the number of investors, a seven-time increase in the number of incubators and a 15-time increase in the total funding of startups. Almost 65,000 startups have been officially recognised, and a recent report has revealed that almost 26,000 tech startups have been founded between 2011 and 2021. In 2021, we added three to four new unicorns every month. India’s startup ecosystem is now the third largest in the world. A new internet user is being added every three seconds. Seventy-five crore people in India are accessing the internet every day.
India’s startups are now solving some of the most pressing challenges faced by India. E-commerce may have driven the first wave, but now we see companies innovating in areas such as fin-tech, agri-tech, health-tech and ed-tech. Take the evolution of India’s fin-tech industry. As a result of JAM trinity (Jan-Dhan/Aadhaar/Mobile) most households in India now have access to basic banking services and are accessing fast payments through mobiles. Unified Payment Interface (UPI) has become a way of life for millions. Our digital public infrastructure has allowed the private sector to innovate on top of tracks built by public/government.
Right from BHIM, PhonePe, Google Pay, Paytm to Amazon Pay, numerous apps are facilitating payments with the click of a button. Innovations in the space have allowed new models of lending to come up that look at cash flows rather than assets. Lendingkart, Pine Labs and Mobikwik are some of the startups that have taken the lead in this sphere. With sufficient comfort with payments and lending, there has been a focus on personal finance, money management, trading and investments.
In my view, startups with a good business model, revenue streams, good governance, and focus on accountability, transparency and profitability will continue to attract capital. To my mind, corporate governance is critical.
Second, startups must get into deep tech areas. Emerging technologies are disrupting manufacturing and services, and future growth will come from use of AI, machine learning, blockchain and big data. The telecom sector opening to 5G technologies will provide a new set of opportunities. There are also the sunrise areas of growth, electric mobility, battery storage, green hydrogen, mobile, electronic manufacturing, etc. The future is about going digital and going green.
Third, there have been major policy changes in emerging areas of growth—space, geospatial maps and drones. In the space sector, we have seen dynamic young entrepreneurs with startups like Dhruva, Agnikul, Cosmos, Skyroot Aerospace, Pixxel building rockets, engines and satellites. These are areas where India, because of its cost arbitrage, can take a giant leap forward.
Fourth, we need to ensure that India’s resources flow into the startup movement in a big way. At present, almost 75 per cent of the funds flowing into Indian startups are coming from foreign investors. This needs to radically change. We need Indian insurance companies, pension funds and Indian family businesses to fund and support startups. If India has to become the leading startup nation with focus on innovation, she must give greater vigour and resources to her own innovators.
Last, to support sunrise areas of growth—climate, cyber security, AI, semiconductors, and digital health, we must create a fund of funds of around $500 billion. This will deploy resources into Alternative Investment Funds (AIFs) who will put resources into dynamic startups in these areas.
This is a once in a lifetime opportunity to make India the startup capital of the world. We must seize the opportunity.
Author is G20 Sherpa and former CEO, NITI Aayog. Views expressed are personal.