Nurturing Startups As Engines Of Economic Growth And Job Creation

Startups play a very important role in economic growth and employment creation. They also drive innovation and create fresh competition for the incumbent firms, thereby lowering costs and enhancing efficiency.  As these startups grow, they contribute significantly to the economic dynamism of the cities and regions they inhabit, attracting more firms to these regions and creating a virtuous cycle of innovation, economic growth and employment generation. We just need to look at how Infosys transformed Bangalore, Microsoft transformed Redmond and Google changed Mountain View to understand the multiple impacts that startups can have on the economic growth of cities and regions.  As they grow and become public, they also generate immense wealth for their employees and shareholders.

How can a developing country like India benefit from nurturing startups? As a nation grappling with the issue of employment generation for the masses, we must realize that most of the new employment has to be created by the private sector. It is in this context that promoting startups, and entrepreneurship in general, can play a crucial role in our economy. However, how strong is our startup ecosystem and what policies are needed to make it grow further? Some estimates suggest that today, India is home to close to 50,000 startups from just around 7,000 in 2008. In terms of the size of the ecosystem, we are the third largest in the world, next only to the US and China. As per a study by NASSCOM and Zinnov Consulting, during the last five years alone, around 7,500 technology based startups have been incepted and the overall startup base has grown at a rate of 12-15% during 2018. Total investment into startups has also grown sharply to $4.2 billion in 2018. India is now home to 18 unicorns, startups with a valuation of over $1 billion. Eight of these unicorns have been added during the last year alone. These startups have directly created around 40,000 new jobs during 2018 with the indirect jobs created estimated at around one lakh. The main verticals where a majority of the technology driven startups are emerging include enterprise software, FinTech, e-commerce marketplaces, HealthTech and EduTech. Advanced technologies driving the expansion in these verticals include data analytics, AI, IoT, Blockchain, and AR/VR.  

There are some key features of the fast evolving startup ecosystem in India. Contrary to popular perception, over 40% of the new startups are being incepted outside the main metros in the country, though Bangalore, Delhi NCR and Mumbai continue to lead as the main startup hubs. However, newer hubs like Jaipur, Trivandrum, Chandigarh, Ahmedabad and Pune are fast emerging. To support the growth of startups, over 200 incubators and accelerators are active across the country, supported by the industry, educational institutions and governments. There has also been a significant rise in international exchange missions, allowing the homegrown startups to expand globally.   

What are the key drivers behind the growth of the startups in India? India is the world’s fastest growing major economy with a growth rate of over 7% and has an internet user base of over 56 crores, which is second only to China in the world. A fast growing economy combined with a large internet user base is opening up unprecedented opportunities for technology focused startups to grow with innovative products and business models. It has also attracted huge funding for the startups. Increasing digitalization in the government through initiatives like the Digital India programme and policies focused on financial inclusion are also driving growth in this sector. The growing number of incubators and accelerators across the country has also helped the startups to get mentor support, tap various sources of funding and develop linkages with the industry.

Initiatives like Startup India have helped the sector through tax exemptions and easy access to financing. Over 20 states have their own focused policies for supporting the startups in their states. These policies focus on mentorship, setting up institutional structures to support the startups, developing partnerships with the industry, online accessibility and improving the ease of doing business. Some states like Karnataka have specific policies to encourage women entrepreneurs.

How can our startup ecosystem grow further and become more competitive globally? To achieve this objective, some specific initiatives must be taken. Early stage startups face two key problems: that of access to finance and markets. Institutional support, both by the government and the private sector, must be strengthened to address these twin issues. Government must also encourage procurement of good and services from the startups by its departments and organizations. Startups should also be supported for obtaining quality certifications, testing, patent filing, etc. at affordable costs. Finally, the governments and the industry must work together to strengthen the growing ecosystem of incubators and accelerators to provide well-developed toolkits, focused training programmes, access to funding, industry linkages and a well-connected network of mentors. With quality institutional support from the government and the industry, startups can certainly contribute much more to innovation, economic growth and employment generation in the country and become competitive globally.

(The above article was originally published on May 6, 2019 in DT Next. It is available at: https://www.dtnext.in/News/Business/2019/05/06005513/1116987/Nurturing-startups-as-engines-of-economic-growth-and-.vpf).