Indian Startups: Venturing into Critical Strategic Domains, Overcoming Obstacles

In recent years, the Indian startup ecosystem has witnessed significant growth. The government's Startup India initiative launched in 2016, aimed to create a favorable environment for entrepreneurship and has played a crucial role in promoting and supporting startups. As of February 28, 2023, about 92,683 entities have been recognized as startups under the program, with approximately 100 of them achieving 'unicorn' status.

Startups in Strategic Sectors

Indian startups are increasingly venturing into critical strategic domains such as space and defense. In the defense industry, startups producing military equipment can help reduce dependency on foreign armaments, promoting self-reliance and maintaining strategic autonomy. Indian startups are leveraging cutting-edge technologies such as the Internet of Things, artificial intelligence, and machine learning to develop drones, precision artillery, and other specialist equipment.

The liberalization of the space industry has also opened up opportunities for startups to collaborate with the Indian Space Research Organization (ISRO) to explore commercial space travel. Startups such as Skyroot Aerospace and Agnikul Cosmos are making significant strides in developing launch vehicles and rocket technology.

Fintech for a Cashless Economy

Fintech startups such as Paytm and MobiKwik have transformed electronic payments in India, paving the way for a cashless economy. The government collaborates with fintech startups to promote financial inclusion and empower the underprivileged through digital transfers.

Driving the 'gig economy'

Startups such as Zomato, Swiggy, and BigBasket have made it easier for individuals to obtain goods and services with the click of a button. These startups are driving the gig economy, which is defined by contractual, part-time, and freelance employment. A NITI Aayog report estimates that the freelance industry will account for approximately 4% of India's overall workforce by 2024, employing up to 2.35 crore people.

Push to foster entrepreneur ecosystem

The campaign has several benefits for startups, including access to funding, self-certification of adherence to labour and environmental laws, and income tax exemption.

Fund of Funds for Startups

To meet the funding requirements of startups, the government has set up a Fund of Funds for Startups (FFS) with a corpus of Rs. 10,000 crores. The Small Industries Development Bank of India (SIDBI) is the functioning body of the FFS, while the Department for Promotion of Industry and Internal Trade (DPIIT) monitors its progress. The corpus is expected to be given over the 14th and 15th Finance Commission cycles based on the availability of funds.

Self-Certification of Adherence to Laws

Startups are permitted to self-certify their adherence to six labour laws and three environmental laws for a period of three to five years from the date of incorporation. This provision is aimed at reducing the regulatory compliance burden on startups.

Income Tax Exemption

Startups formed on or after April 1, 2016, are eligible for income tax exemption. Recognized startups that receive an Inter-Ministerial Board Certificate are exempted from income tax for a period of three years after formation. This exemption aims to boost startups' growth in their early stages.

Brain Drain & Funding Woes

Brain Drain: One significant challenge to the Indian startup ecosystem is the ongoing issue of brain drain. Over 6 lakh Indians gave up their citizenship for other countries between 2017 and 2022, according to a report by Morgan Stanley. Moreover, the same report suggests that over 23,000 high-net-worth individuals left India between 2014 and 2018. The growing trend of India's finest minds, entrepreneurs, and job providers renouncing their citizenship is a significant concern for the Indian startup ecosystem.

Funding Woes: Access to capital is another major challenge facing Indian startups. According to a report by NASSCOM, only 20% of Indian startups will be able to acquire investment by 2023, while more than 50% will struggle to raise funds.

Complex Regulatory Framework: Navigating India's legal and bureaucratic processes can be challenging for startups. India ranks 63rd out of 190 nations in the World Bank's Ease of Doing Business ranking, an improvement from 142 in 2014. However, the government of India has set a goal of placing India in the top 50.