The Transforming Startup Landscape in India and Future Potential
The popularity of startups is growing among Gen-Z, making them the most sought-after career option in present times. However, the initial wave of startups dates back to the Great Recession, which first diverted the earning population towards entrepreneurship. Logistics and advertising startups were prominent in the past, however, 56 diverse industrial sectors are contributing to the growth of startups in the Indian subcontinent. IT services majorly contribute to the trend with a market share of 13.0%, followed by healthcare and life sciences (9.0%), and education (7.0%).
In 2016-23, the IT industry accounted for more than 13,500 startups in India, demonstrating a remarkable CAGR (Compounded Annual Growth Rate) of 289.0%. 49.0% of the IT startups, recognized by the Department for Promotion of Industry and Internal Trade (DPIIT), belonged to tier 2/ 3 cities. The IT startups have generated more than 1.52 lakh (152 thousand) jobs. The sectors with the highest recognized startups in the IT Industry include application development (25.0%), product development (24.0%), and IT consulting.
The healthcare & lifesciences industry grew by a CAGR of 127.0%, with the numbers reaching over 11,000, during the period. 47.0% of the recognized startups belonged to tier 2/3 cities. The startups provided a living to more than 1.11 lakh (111 thousand) people. The highest-performing industrial sectors include health & wellness (27.0%), healthcare services (19.0%), and pharmaceutical (16.0%).
The third most significant donor to the overall growth of Indian startups is the education industry, with more than 7,100 recognized startups, with 52.0% of the total belonging to tier 2/3 cities. The industry is growing at a CAGR of 77.0%, employing more than 69,000 people. The top-performing sectors include education technology (34.0%), skill development (27.0%), and e-learning (22.0%).
Additionally, DPIIT has determined the ‘Changemaker Industries' be the 'Indian Startup Ecosystem'. The changemaker industries are characterized as the industries that are growing with the fastest CAGR of recognized startups in the country. Waste management is one such industry, which grew 41x in number of startups during 2020-23. The absolute values include 900+ recognized startups, of which 58.0% of startups were recognized from Tier 2/3 cities. This generated employment for more than 9,500 individuals.
Toys and Games is another changemaker industry, marking an 84x increase in the number of startups during 2020-22. It reported over 330 recognized startups, generating more than 3,400 employees. 41.0% of the total startups were recognized from tier 2/3 cities.
Indian Government has contributed significantly to the growth of the entrepreneurial mindset, which is evident in the launch of the ‘Startup India’ initiative in 2016. Since its launch the ‘Startup India’ created over 15.53 lakh (1.5 million) direct jobs. Additionally, DPIIT recognized 1,40,803 entities as startups, as of June 2024. The consistent efforts of the forum have made India the third largest ecosystem for startups, after the US and China. In March 2024, at Startup Mahakumbh PM Narendra Modi, announced the existence of 1.25 lakh (125 thousand) startups and 110 unicorns, in the country highlighting the economic potential.
Startup India is a comprehensive initiative that supports the growth and development of the startup ecosystem. It has provided regulatory support for the organization of the landscape, by ascertaining the development of optimal frameworks. Some of the recent developments in the arena include Finance Bill 2022, Single Master Form (SMF), One Person Companies (OPCs), and more. The government is providing an incubator framework to provide the necessary resources such as infrastructure, mentorship, and financial support to nurture innovation in startups. India has more than 400 incubators, however, most of them are in the nascent stage. The SISFS (Startup India Seed Fund Scheme), is expected to benefit approximately 3600 startups, with a corpus of INR 945 crore ($127.5 million), divided over 4 years, starting FY 2021-22, for eligible incubators.
Startup India also provides various networking facilities for startups such as international engagement, and other programs and challenges. In addition, the support extends in the form of recognition, marquee initiatives, and other resources.
Source: Startup India
Note: * Self-reported by startups
The years from 2015-2022 have witnessed exponential growth in the Indian startup ecosystem, with a 15X increase in the total funding of startups, a 9X increase in the number of investors, and a 7X increase in the number of incubators.
The trend is contributing to the rapid emergence of Indian Unicorns, contributing significantly to the economy and the job landscape in the region. Unicorns have been increasing exponentially in India, for the past four years, since FY 2017-18, marking a significant 66.0% Year-on-Year growth in the number of additional unicorns being added every year. In October 2023, India reported 111 unicorns with a total valuation of $349.67 billion. Of these 45 unicorns with a total valuation of $ 102.3 billion were born in 2021 and 22, unicorns with a total valuation of $29.20 billion were born in 2022. Unconventional sectors and sub-sectors entered the unicorn space including, NBFCs (Non-Banking Financial Company), conversational messaging, cryptocurrency exchanges, D2C (Direct-to-Consumer), cloud kitchens, and more. At present, 1 out of 10 unicorns globally are born in India.
India is considered the ‘Most Friendly Startup Country’, according to the 2021 survey of CEO World Magazine. This is primarily attributed to, the availability of a technical workforce, increased investment in upskilling the workforce, escalating focus on R&D, adequate availability of resources, and favorable policy framework. Additionally, increasing digitalization, and progressive government initiatives such as, 'Make in India' and 'Atmanirbhar Bharat’ are also contributing to the development of the startup ecosystem in the country.
The growth of the startup ecosystem is primarily driven by increasing corporate connections and accelerating government support. Enterprises are realizing the potential of start-ups and are partnering with/investing in them. For instance, Facebook in partnership with Startup India disbursed cash grants of $50,000 each to 5 startups.
Furthermore, women entrepreneurs have a significant contribution to the startup ecosystem, with 50.0% of Indian startups led by women. According to the India Brand Equity Foundation (IBEF), 45.0% of the startups are run by women, of which over 50,000 startups are recognized by the government. Some of the prominent women-led Indian startups include Nykaa, Mobikwik, Zolo, Byjus, Thrillophilia, and more. Women-led start-ups generate more returns than those led by men, with up to 35.0% higher ROI (Return On Investment).
Women are driven towards the start-up culture, in a vague to provide a lifestyle to their family. As women make 85.0% of purchase decisions, they are looking forward to contributing to the expenses. Furthermore, Indian women are pivotal benefactors to the science and technology sector, owing to the steady rise in STEM (Science, Technology, Engineering, and Mathematics) graduates that account for 40.0%.
The Indian government is encouraging women entrepreneurs by introducing various initiatives and schemes. The Ministry of Women and Child Development saw a marginal increase of 2.5% in the budget allocation for the financial year 2024-25. The total budget for the ministry stands at INR 26592.19 crore ($3.2 billion), as against INR 25948.68 ($3.1 billion) in FY 2023-24. This has also been supported by the schemes of the central government, such as Bharatiya Mahila Bank Business Loan, Dena Shakti Scheme, Udyogini Scheme, Women Entrepreneurship Platform, Pradhan Mantri Mudra Yojana, coupled with the different schemes offered by the state government.
Source: indiaeducationdiary. in
India currently has over 15.7 million women-owned enterprises, which is expected to reach 30 million by 2030, accounting for the creation of 150–170 million jobs in the region. This is anticipated to bestow fortune on the national economy.
Source: Startup India
Contrary to the past circumstances the ongoing economic turbulence has resulted in a decline in the funding rendered to the startups. This resulted in the drop off of 25 startups from the unicorn list, with only 3 managing to make up for the enlistment. The three unicorns included Zepto, an expedited delivery service, InCred Finance, and Porter, a logistics platform. Ixigo shorted the index following its successful Initial Public Offering (IPO) earlier this year. A steep rise in the interest rates has also contributed to the overall decline. However, India reported 67 unicorns, 46 Gazelles, and 106 Cheetahs, collectively valued at $58.0 billion, increasing by 1.8% from the previous year.
India’s tech landscape has faced the highest decline owing to the downturn. In 2023, the funding for tech startups plunged 67.0% YoY, to $ 6.0 billion. The decline was huge after the funding peaks of $ 24.1 billion (2021), and $ 18.2 billion (2022). In 2023, the number of new tech unicorns fell to two. However, the decline in funding promoted the prioritization of business fundamentals among tech startups, which would be beneficial in the long run.
The funding is uncertain for the Indian economy. For instance, the startup funding again dwindled below the expectation for the week of 19th August 2024-24th August 2024, during the launch of four startup-focused funds, including Titan Capital (Winners Fund), Volt VC, Arka Credit Fund, and PW School of Startups.
Encapsulating, current circumstances hold the Indian startup ecosystem in the grave of precariousness. However, the nation is bound to bounce back owing to government support, aspiring investors, and the rising entrepreneurial spirit among the people. Thus, the region highlights a bright morning for the startup ecosystem in the wake of nurturing political and legal frameworks, active involvement by women, and supportive investor sentiments. Additionally, the rise of potential startups is anticipated a bring a dawn of multifold progress to the Indian economy.