Start-up Ecosystem in India – UPSC GS3

India is home to the world’s third–largest startup ecosystem.

India has recognised more than 61,000 startups as of date.

In 2014, there were only four startups in the unicorn club but in 2022 there are more than 70 unicorns.

Start-ups are responsible for 2/3rd of jobs in USA.

There are more than a hundred funds registered with markets regulator Securities and Exchange Board of India alone.

Large pool of cheap talent

Huge domestic market

Willingness of foreign companies and invetstors to be a part of Indian market

Government support:

Due to excessive red tape in the investment processes, many companies are leaving India. Ex. Flipkart was forced to register in Singapore.

Start-ups want government not to club them with SMEs, and to focus on removing regulatory hassles

They want abolition of capital gains tax to allow Valley-based entrepreneurs to invest early in Indian start-ups, and help them grow global businesses.

Lack of exits due to Bureaucratic and regulatory hurdles in merger and acquisition processes

Last year, 54% of funded tech start-ups domiciled themselves out of India to Singapore & USA because of better regulatory environment there. Ex. Flipkart

Man power – scarcity of people who are ready to take risk.

Weak infrastructural support – need more acceleration centres, incubators etc.

Diverse market i.e. different languages, tastes, culture – it hinders growth of a big product.

Benefits such as R&D credits and capital gain tax credits for entrepreneurs

Government should setup & fund incubators at universities and colleges.

The Centre alone has announced a corpus of Rs. 10,000 crore to fund start-ups, of which 75 have actually received some money so far

India’s policy on foreign direct investment was specifically amended to include start-ups,

Start-ups are now allowed to accept up to 100% of their funding requirement from foreign venture capital investors

Tax write offs

Relaxation of rules for venture capital flow

Rules that make it easy for start-ups to shut down

Streamline patent process online to make it more convenient

Research park initiative – at 50 institutes Rs 100 crore from next year -> will foster the start-ups by students and former student -> handholding start-ups in initial phase

The Reserve Bank of India (RBI) has permitted startups to raise external commercial borrowings (ECBs) of up to $3 million in a financial year for three year tenure.

There are many schemes run by various arms of the government, all of which provide tax breaks, incentives, grant money and other forms of assistance to wannabe technopreneurs

Technical Assistance: The Department of Electronics and Information Technology offers technical assistance for filing patents.And up to Rs. 15 lakh per invention, or up to 50% of the costs incurred in filing a patent

The department has multiplier grants scheme which provide up to Rs. 2 crore for start-ups in the IT services, analytics, artificial intelligence, and Internet of things space

Funds for Borrowings: The Credit Guarantee Fund Trust for Micro and Small enterprises underwrites borrowings of up to Rs. 1 crore per unit

Encouraging initiative: The Centre’s Atal Innovation Mission funds up to Rs. 10 crore for each Atal Incubation Centre set up under the scheme

The Atal Mission also provides funding to schools to set up ‘Atal Tinkering Laboratories’ to spur the spirit of innovation and enterprise amongst the young

BHARAT Fund :  It is a fund launched by the Prime Minister Narendra Modi during his recent visit to the US. It is a fund for Better Health, Agriculture, Renewable and Technologies (BHARAT). It is a major initiative to encourage start – ups.

72% of founders are less than 35 years of age (young start-up Nation)

Reasons:

Impact:

Need of hour:

1%  of corporate profit can be directed towards research labs in universities &/or University – Industry research collaboration –> corporate venture capital fund for investment in start-ups and/or incubators

Contracts with foreign defence companies above $5bn –> 5% can be directed towards establishing research centric universities with emphasis on core products

GRAND Prizes can be established for finding ultra-low cost solutions –> Incentivised Innovation

Increase in investment in Business Incubators with up to Rs200 cr public spending per year and roping in Private players

Establish “FUND-OF-FUND” by the government to seed other early stage venture funds with corpus of Rs 5000 cr.

Will provide the framework to government to encourage and promote self-employment as a career option

Seeks to combine innovators from Universities, consultant and private sector enterprise with government

AIM would have four working groups on

Israel is the most celebrated success story of state intervention and policy creating and shaping an innovations powerhouse. It set up a technology incubator programme way back in 1991, under the office of its Chief Scientist. Since then, it has gone on to become a major world power in IT innovation, as well as innovation in the pharma sector. Many countries have tried to follow the Israel model, but with far less success

This is probably because Israel’s policy was clearly focussed in a few areas of technology where

On the other hand, the U.S., with the largest start-up ecosystem has no clear start-up policy, though almost every state and several major cities have specific policies