Prime Minister Narendra Modi recently held an interactive session on start-ups and innovation, in which he underscored the importance of promoting entrepreneurship. A slew of policies has been rolled out under the “Start Up India” scheme, launched in 2016. It is a conscious effort to squarely address the challenge of unemployment amongst educated youth, by encouraging them to become job creators — not job seekers.
The internet boom of the Nineties laid the foundation for ushering in Huxley’s “Brave New World”. As voice recognition becomes more refined, devices like Amazon’s “Alexa” and Google Assistant are testing the limits of imagination. Deep tech applications such as FinTech, cybersecurity, block chain, robotics, artificial intelligence (AI) are redefining human interaction. The speed and scale of expansion of start ups like AirBnB and Uber have put established transnational companies to shame. Access to global markets, research and finance is now available at a click.
The global start-up landscape is still dominated by the West, though a discernible shift is underway. As per the Global Start-up Eco System Report 2018, the US remains the leader with a 41 per cent share of start-ups but China is closing the gap with a 35 per cent share of the market.
A Grant Thornton-Assocham report estimates that there are nearly 10,000 start- ups in India, of which 43 per cent are tech-based ventures. Annually, close to 800 start-ups are taking root in the country. Bengaluru is one of the emerging global hubs. Flipkart, Ola, PayTm are some of the start-ups that have made it big. Start-ups are now occupying the social development space as well. Bengaluru-based BYJU’s is the largest ed-tech company in India, developing learning apps for students from Class 6 to Class 12, with over 16 million downloads.
In this backdrop, it would be useful to dwell on the USP of Silicon Valley, which has made it the crucible of innovation and enterprise. The valley, spread around San Francisco, is home to some of the major technology companies — Apple, Facebook, Oracle, Visa, Intel, Cisco. These companies have served as anchors for new companies, a large number of which are founded by ex-employees. The anchor companies end up financing start-ups, given the lower costs of research or product development, and provide access to global markets. The area is also home to two world class universities:
Stanford and the University of California at Berkeley. There is also no dearth of capital with venture capitalists (VCs) providing flexible financing options. Clearly, the three key ingredients for a successful start-up ecosystem are: A thriving city, availability of talent and capital and the presence of large companies.
In this framework, let us assess the unfolding Indian start-up ecosystem.
There is no dearth of talent in the technology space. According to the NITI Aayog, India has 2.6 million STEM graduates ( Science, Technology, Engineering and Math), next only to China. There are 10,400 technical institutions in the country, including 23 Indian Institutes of Technology and 31 National Institutes of Technology. The Department of Science and Technology and the Ministry of Human Resource Development have approved the establishment of 13 start-up centres, 16 technology business incubators and six research parks in technical institutions across the country.
As per the digital cities survey of 2016, Bengaluru, New Delhi and Mumbai top the list of preferred technology hubs, though cities such as Pune, Thiruvananthapuram, Ahmedabad, Hyderabad, Jaipur, Chandigarh and Mysore figure prominently as well. The PM reinforced this point when he said, “Start-ups are no longer only in big cities. Smaller towns and villages are emerging as vibrant start up centres”.
The biggest bottleneck for start-ups in India has been access to easy low-cost finance. Under the Pradhan Mantri MUDRA Yojana, nearly 6.5 million loans of up to Rs 10 lakh have been sanctioned this year, with disbursement of nearly Rs 30,000 crore. Nonetheless, bank lending for larger start-ups remains a challenge because banks are averse to taking risks and charge high interest rates. VC finance offers a good alternative. According to a recent Grant Thornton report, there are 660 VC funds in India. In FY-17, VC funds invested $17 billion in start-ups — such investment is expected to grow by 70 per cent this year. The SEBI has recently liberalised the regulatory framework for VC. SIDBI has established a “Fund of Funds for Start Ups” with an initial corpus of Rs 10,000 crore to finance alternate investment funds. Government of India has also allowed exemptions from income tax and capital gains tax up to three years for investment in start-ups. Philanthropic organisations like the Tata Trust have also stepped in to finance incubation labs.
From a policy standpoint, it would be useful to identify start-up hubs and priority sectors, drawing upon comparative advantage and global trends. Twenty Tier 2 and 3 cities, with flourishing technology ecosystems, could be declared “National Start Up Hubs” for targeted investments to build linkages between industry, academia and finance. Pioneers of the Indian IT revolution could be roped in to create a pool of start-up mentors. Technologists and entrepreneurs of the Indian diaspora in the Bay area and other parts of the world could be one of the finest resources of this movement. A platform could be created to channelise NRI investment in technology-based start ups. A “soft touch”, nimble and responsive regulatory framework will be required to support the rapidly changing technology landscape.
The ingredients are right for catalysing an Indian Start Up Revolution, which could turn India’s demography to its advantage.