Assessing 5 years of Startup India
One of the key goals of the Modi government was to boost entrepreneurship in India. The main government initiative to pursue this goal was Startup India announced in August of 2015 and launched in 2016. 5 years on from its inception, Startup India has recognized more than 50, 000 new startups.
Startup India has three major objectives: 1) simplification and handholding, 2) funding support and incentives, and 3) industry-academia funding and participation. I will be looking at how successful Startup India has been in promoting these targets along the lines of Entrepreneurial Capacity (E-Cap) and Innovation Capacity (I-Cap)
Creating entrepreneurs (E-Cap):
Growth:
There has been a clear rise in the number of startups and people wanting to pursue entrepreneurship. From having 29, 000 startups in 2014, India as of 2020 has 55, 000 with Startup India accounting for the majority of them. Some measures that the government has taken to achieve this vast growth has been to cut regulations and red tape with regards to starting and maintaining a startup. These include exemption on capital gains tax for 3 years, reducing patent registration costs and, improving the bankruptcy code - amongst a variety of other regulatory hurdles being reduced or abolished.
Funding:
On the positive side of the funding piece, the Indian government has provided a pool of INR 10, 000 crore (USD 1.5 billion) to be provided to Startup India entrepreneurs over a 4-year time period.
However it seems as though the funds do not get distributed evenly nor are all the funds being made available to the entrepreneurs. In June 2019 the Ministry of Commerce provided an update that only USD 439 million had been provided to the fund thus far and out of that only USD 68 million had been distributed to startups. Furthermore, 50% of Indian entrepreneurs in 2019 stated lack of access to funding as a major constraint while 38% credited it as a key factor in shutting down their ventures according to a Global Entrepreneurship Monitor report.
Diversity:
Diversity has been an area in which Startup India has been less successful, particularly with regards to women entrepreneurs participating in the scheme. According to the World Economic Forum, just 9% of startups in India are founded by women. Startup India in 2020 launched a new initiative aimed at female founders called Women Entrepreneurship Program (WING) in 2020. So it is a space to watch over the next few years to see how this program can raise female entrepreneurship in India.
Creating innovation ecosystems (I-Cap):
Strengths:
Foreign investors
The reduction of regulations has not just boosted entrepreneurship on an individual level in India, it has also led to more investment, foreign and domestic, within the country. An example of this is tax exemption for firms who invest above the fair market value rate. Large investors from abroad have flocked to India in recent years with Softbank investing over $2 billion in Indian startups and Walmart acquiring 77% of Indian company Flipkart for $16 billion in 2018.
Secondary city hubs
One of the big successes of the Indian startup boom is the rise of secondary cities in the country. Government intervention in certain key areas has allowed them to be turned into innovation hubs which include cities like Bangalore. Startup India has continued along this trajectory pushing incubation centers in places like Rajasthan (iStart Rajasthan) and Kerala (Startup Mission which has a 13-acre startup campus).
Academia
An important initiative being pushed by Startup India is the need for universities and schools to get involved with entrepreneurship. Academia is seen as a way to source for good ideas for the present as well as ensure that the innovation ecosystem continues to thrive in the future. One such venture by Startup India is the Innovation Focused Programs for Students. The aim is to source 1 million new startup ideas from schools with an aim to showcase and invest in the 100 best ideas.
Weaknesses:
Rising income inequality
A major drawback of the innovation push is that it is largely concentrated in urban settings and as such can be seen leaving rural Indians “behind”. According to R S Sodhi (AMUL), 58% of Indians get 1/7 of the total wealth created. If something is not done to include Indians from various walks of life in this innovation boom, then the problems of income inequality are only set to rise.
Conclusion
India has come leaps and bounds in the last decade with regards to becoming an innovation ecosystem, and a large part of that can be attributed to government programs like Startup India. The challenge for the next decade is whether India can continue their innovation growth while addressing the problems that are currently plaguing the system particularly financing ventures and inclusivity of the ecosystem.
