India has seen an exponential increase in entrepreneurial activity over the last ten years, making it one of the world's top startup ecosystems. As of 2023, India had over 1,12,718 DPIIT[1]-recognized startups spread across 763 districts, making it the third-largest startup ecosystem in the world. Among middle-income economies, India ranks 2nd in terms of innovation quality and top in terms of the calibre of its universities and scientific publications[2].
Increased internet usage, digitization, and government initiatives are some of the factors that have contributed to the growth of India's top-funded industries. These sectors include Retail, Enterprise Applications, Fintech, Transportation & Logistics tech, Food & Agriculture tech, Auto tech, Travel & Hospitality tech, and Edtech[3].
The Indian ecosystem presents a compelling prospect for nascent entrepreneurs worldwide, furnishing a vast consumer base, favourable policy frameworks, and substantial scalability potential, owing to a youthful and tech-aware populace desirous of inventive resolutions. As of March 2024, India has 114 unicorn[4] startups[5], with a total valuation of more than $350 billion. According to a report by WISER’s Women’s in India Startup Ecosystem Report, women-led startups have risen to 18% in India in the last five years. Over 20% of the MSME sector comprises of women-led businesses[6].
Along with a talent pool of entrepreneurial minds, government initiatives have surely helped startups to proliferate. For instance, tax breaks, funding avenues, and regulatory relaxations and other government programs augmented the startup ecosystem in India.
- Make in India[7]: Launched in the year 2014, it was a revolutionary scheme to encourage both domestic and foreign investments in the country[8].
- Startup India initiative: Startup India is a flagship initiative of the Government of India, launched in 2016, intended to catalyse startup culture and build a strong and inclusive ecosystem for innovation and entrepreneurship in India.[9].
- SAMRIDH Scheme: Launched in August 2021 to enhance the start-up accelerator ecosystem in India. The SAMRIDH scheme provides support to selected accelerators for extending acceleration services to start-ups. The scheme will support around 300 tech Start-Ups in 3-year duration[10].
Other notable schemes and initiates of the government include the Atal Innovation Mission[1] (AIM), Multiplier Grant Scheme[2] (MGS) and Startup India Seed Fund Scheme[3].
Emerging trends
India is about to connect even more digitally. The country is expected to have more than 900 million active internet users by 2025, a considerable increase from the 759 million users in 2022[4]. The Indian cities are not the only places where the digital wave is present. India's rural areas will account for a startling 56% of new internet users by 2025, signalling a digital revolution in the country's core[5]. It is also projected that 65% of new internet users by 2025 will be female[6]. With more proliferation of the digital age into the heartlands of the country, the market size increases for existing and upcoming startups.
DeepTech, SpaceTech, AI, and electric vehicles are just a few of the new industries that have expanded the startup scene in India. While the EV sector has received $4.8 billion in funding over the last ten years, DeepTech has seen an increase in funding, reaching $2.1 billion.[7]
Owing to privatization, Space Tech has also been in demand. India is currently ranked seventh in the world for funding in the field of international space technology[8].
The startup ecosystem has brilliantly expanded in India in the past years, 2021 and 2022 have been especially significant. 2022 followed the trend of 2021, which was marked by a large number of new unicorns and massive deals, but with an emphasis on profitability and sustainable growth. However, 2023 reflected a deceleration to this growth. The startup funding in India fell over 62% in 2023 to Rs. 66,908 crore as compared to Rs. 1,80,000 crore in 2022[9]. A prominent contributing factor to the 2023 decline was the discernible decline in mega deals. These massive investments, which were typical in prior years, started to become less frequent, suggesting that investors were taking a more cautious stance. A few startups had governance problems, which made investors more cautious overall. In 2023, the world economy itself suffered owing to geopolitical tensions and uncertainties in global markets, which had an effect on the flow of funding into the Indian startup scene.
Despite such challenges, the ecommerce, fintech and health-tech sectors topped in terms of funding:[10]
The Future
The prosperity of India's startup ecosystem is closely linked to the country's economy. The country's economic outlook is still positive, with 6.3% annual growth predicted for 2023–2024[11]. The government's unwavering support for the tech industry was reaffirmed in the 2023 budget, which features initiatives like the Drone Shakti Programme[12] and tax breaks. Furthermore, The interim budget for 2024-25 has proposed to extend the tax holiday offered to startups[13].
Long-term prospects appear promising, as the IMF projects that India's economy will grow to become the third largest in the world by 2027[14]. More investment activity is anticipated in the upcoming years as the global economy continues to strengthen, further solidifying India's position as a premier investment destination.
Tips for EU startups
EU startups may have to navigate complex legal frameworks and bureaucratic obstacles due to the complex regulations. Obtaining sufficient funding to enable the startup to compete in low margin industries presents another challenge. Building relationships in India requires an understanding of the nuances and preferences of its diverse consumer base.
- Localise your products and services to suit the Indian market's specific needs and preferences.
- Look for strong partners who can help you grow in the local business environment. Hire local talent and assemble a strong team with experience and credibility.
- Connect with local incubators, investors, and industry experts and try to gain valuable insights and support from them.
- Always be aware of the current legal and regulatory guidelines. Partner with legal firms that specialise in foreign startups.
[1] Atal Innovation Mission (AIM) is Government of India’s flagship initiative to create and promote a culture of innovation and entrepreneurship, https://aim.gov.in/
[2] Department of Electronics and Information Technology (DeitY) is implementing Multiplier Grants Scheme (MGS). MGS aims to encourage collaborative R&D between industry and academics/ R&D institutions for development of products and packages, https://www.meity.gov.in/content/multiplier-grants-scheme
[3] Startup India Seed Fund Scheme aims to provide financial assistance to startups for proof of concept, prototype development, product trials, etc., https://seedfund.startupindia.gov.in/
[4] https://www.thehindu.com/news/national/over-50-indians-are-active-internet-users-now-base-to-reach-900-million-by-2025-report/article66809522.ece
[5] https://www.thehindubusinessline.com/news/56-of-new-internet-users-to-be-from-rural-india-by-2025-report/article67282295.ece
[6] https://www.moneycontrol.com/news/business/internet-users-in-india-set-to-reach-900-million-by-2025-report-10522311.html
[7] https://www.livemint.com/companies/start-ups/from-2014-to-2023-how-the-startup-ecosystem-is-thriving-in-india-explained-11705547737333.html
[8] https://www.thehindubusinessline.com/news/science/indian-space-tech-industry-secures-62-million-funding-in-2023/article67238705.ece
[9] https://www.business-standard.com/companies/start-ups/startup-funding-in-india-fell-62-to-six-year-low-in-2023-privatecircle-124012300099_1.html
[10] https://inc42.com/reports/the-state-of-indian-startup-ecosystem-report-2023/
[11] https://www.imf.org/en/Countries/IND
[12] https://economictimes.indiatimes.com/news/defence/bharat-drone-shakti-2023-here-is-all-you-should-know-about-the-two-day-exhibition/articleshow/103924326.cms?from=mdr
[13] https://economictimes.indiatimes.com/tech/startups/budget-2024-tax-holiday-for-startups-sovereign-funds-extended-by-1-year/articleshow/107322717.cms?from=mdr
[14] https://www.morganstanley.com/ideas/investment-opportunities-in-india
[1] The Department for Promotion of Industry and Internal Trade (DPIIT) is a central government department under the Ministry of Commerce and Industry in India.
[2] https://www.investindia.gov.in/indian-unicorn-landscape
[3] https://www.livemint.com/companies/start-ups/from-2014-to-2023-how-the-startup-ecosystem-is-thriving-in-india-explained-11705547737333.html
[4] A unicorn is a privately held startup company with a value of over $1 billion.
[5] https://inc42.com/features/indias-unicorn-club-the-comprehensive-list-of-unicorns-in-india/
[6] https://economictimes.indiatimes.com/small-biz/entrepreneurship/navigating-indias-entrepreneurial-ecosystem-insights-for-foreign-startups/articleshow/108316999.cms?from=mdr
[7] Make in India is an initiative by the Government of India to create and encourage companies to develop, manufacture and assemble products made in India and incentivize dedicated investments into manufacturing. https://www.makeinindia.com/
[8] https://economictimes.indiatimes.com/small-biz/entrepreneurship/navigating-indias-entrepreneurial-ecosystem-insights-for-foreign-startups/articleshow/108316999.cms?from=mdr
Details
- Publication date
- 24 April 2024
- Author
- European Innovation Council and SMEs Executive Agency