Mains Practice Questions

Approach

• Start your answer by briefly introducing start-ups and provide their present status in India.
• Discuss the challenges faced by startups in India.
• Conclude by giving way forward in tackling challenges in India’s startup ecosystem.

Introduction

• A startup is a company or organization that is in the initial stages of business. These companies are often characterized by their innovative approach to solving a problem, and they are usually founded by entrepreneurs who are looking to turn their ideas into successful businesses.
• Further, India is home to 107 unicorn (valuation of USD 1 billion) startups with a total valuation of USD 340.79 Billion.
• According to the India Venture Capital Report 2021 published by Bain and Company, the number of cumulative start-ups has grown at a Compounded Annual Growth Rate (CAGR) of 17% since 2012 and crossed 1,12,000.

Body

• Startups in India face a number of challenges, including the following:
  • Lack of Forward Thrust to Innovation: India’s education system lacks vocational training and industry exposure that keeps students deprived of pursuing innovation. As a result, this makes the Indian higher education system lags behind in terms of research and development.
  • Bootstrapped Nature: For running a start-up, a significant amount of working capital is required. Many start-ups in India, especially at early stages, are bootstrapped, i.e., self-funded through the founders’ own savings, since domestic financing is limited.
  • Scalability Concern: Small start-ups in India have limited understanding of customers and are confined to only certain regions, where they know the local language and local people.
  • Marginal Penetration in Space Sector: Indian startups in fintech and e-commerce are doing exceptionally well, but space startups remain outliers.
    • Globally, the space economy is valued at USD 440 billion, with India holding less than 2% of the market.
  • Hiring and retaining top talent: Competition for top talent is fierce in India, and startups may struggle to attract and retain the best employees.
  • Competition: India has a rapidly growing startup ecosystem, which can make it difficult for new startups to differentiate themselves and stand out from the competition.
  • Infrastructure challenges: India's infrastructure, including its transportation and logistics networks, can be unreliable and inefficient, which can make it challenging for startups to operate effectively.
  • Lack of Recognition: Since nearly 70% of the Indian population lives in rural areas that are still deprived from reliable internet access. Consequently, many village-based start-up go unrecognized and are deprived of government funding initiatives.
• Government Initiatives related startups in India:
  • Startup India Seed Fund Scheme (SISFS): It aims to provide financial assistance to startups for proof of concept, prototype development, product trials, market entry and commercialization.
  • National Startup Awards: It seeks to recognize and reward outstanding startups and ecosystem enablers that are contributing to economic dynamism by spurring innovation and injecting competition.
  • SCO Startup Forum: The first-ever Shanghai Cooperation Organisation (SCO), Startup Forum was launched in October 2020 to develop and improve startup ecosystems collectively.
  • Prarambh: The ‘Prarambh’ Summit aims to provide a platform to startups and young minds from around the world to come up with new ideas, innovation and invention.

Way Forward

• Here are a few potential measures that could be taken to address these challenges:
  • Improving access to funding: One way to help start-ups in India access funding is by improving the availability of venture capital and other forms of financing. This could be done through measures such as tax incentives for investors and making it easier for start-ups to access government funding programs.
  • Streamlining regulatory processes: Start-ups often face a number of regulatory hurdles that can be time-consuming and costly. To make it easier for start-ups to navigate these challenges, the government could consider streamlining regulatory processes and reducing the number of approvals required.
  • Promoting entrepreneurship: Encouraging entrepreneurship and supporting the development of entrepreneurial skills can help create a more supportive environment for start-ups in India. This could be done through initiatives such as entrepreneurship education programs and mentorship opportunities.
  • Fostering collaboration: Encouraging collaboration between start-ups, established firms, and other stakeholders can help create a more supportive ecosystem for start-ups in India. This could be done through initiatives such as accelerators, incubators, and co-working spaces.
  • Providing access to resources and networks: Providing start-ups with access to resources and networks can help them overcome challenges and succeed. This could include access to information, market research, and industry experts.