Indian Startup Ecosystem: Challenges & Future Prospects

India boasts the world’s third-largest startup ecosystem, with a 12-15% growth rate. Did you know that in 2018, India had approximately 50,000 startups across various industrial sectors? Around 8,900 – 9,300 of these were tech startups. Later, in 2019 alone, 1,300 new tech startups emerged, meaning 2-3 tech startups were launched every day! Generally, it was seen before that the participation of women entrepreneurs was significantly lower, but now we can witness some shifts in that. The number of women entrepreneurs rose to 14%, up from 10% and 11% in the preceding two years. Isn’t that incredible?

In this article, we will explore the intricacies of the Indian startup ecosystem, its challenges and future prospects.

What Is The Scenario Of Startups In India?

As we have already mentioned, India has the third-largest startup ecosystem in the world. Further, India ranks second in terms of innovation quality, with top positions in the quality of scientific publications and the quality of its universities among middle-income economies. In the past few years, some of the best startups in India have reached the level of unicorns, i.e., they have crossed the valuation of USD 1 billion, for instance, Ola. 

In the last seven years, startups in India have witnessed tremendous growth:

  • Their funding increased by 1500%
  • Total number of investors increased by 900%
  • We witness a meteoric rise of 700% in the incubators

During the same period, 100+ startups gained the status of unicorn startups, boosting the Indian startup ecosystem. As of May, there were 108 unicorn startups in India.

Challenges Faced By Startups In India

The startup ecosystem might have reached new heights of success in the last few years, but Indian startups still need to face certain challenges. Even some of the best startups in India, like Paytm, are not able to overcome these challenges. Let’s have a look at them:

Lack Of Funding

Funding remains one of the biggest challenges for the Indian startup ecosystem. Although we have mentioned that funding for startups has increased by 15 times, it is still insufficient to quench the hunger of the growing startups in India. This is mostly because the world economy is currently facing downturns and is predicted to have fewer growth rates in the coming years. Because of this, many investors have lost confidence and have become risk-averse.  

Struggle To Generate Profits

Startups work on the philosophy of increasing their customer base at the expense of the investor’s money. It is very hard to find a startup that has become profitable within the first few years of its operations. Even if you look at startups like Zomato, it took them 15 years to become profitable, and this is just one of many cases. This type of startup ecosystem generally has poor business models and ineffective pricing policies, and eventually, it succumbs to its own operations.

Regulatory Environment and Tax Structures

The majority of companies still need to pay income tax at a flat 30% rate. However, certain companies may have to pay lower taxes as specified by the law, and some government-recognised startups are exempt from paying taxes for 10 years. These exemptions may slightly boost the Indian startup ecosystem, but stringent regulatory compliance might steal that growth. Startups may struggle to meet this regulatory compliance and suffer a devastating loss because of the regulatory compliance, as in Paytm’s case.

Lack Of Adequate Infrastructure

Even after becoming the fastest-growing economy in the world, India still lacks sufficient infrastructure to support the growth of the startup ecosystem. As per Time of India, ‘India’s infrastructure isn’t always as developed as a few other nations, which can make it difficult for startups to function. This includes demanding situations consisting of negative roads, unreliable electricity, and confined entry to the broadband net.

Steps Taken By The Government To Boost The Startup Ecosystem

1. Startup India Seed Fund Scheme (SISFS): This initiative provides financial assistance to Indian startups for proof of concept, prototype development, product trials, market-entry, and commercialization.

2. National Startup Awards: This program celebrates and honours exceptional startups and ecosystem enablers that drive economic growth by fostering innovation and enhancing competition.

3. SCO Startup Forum: The inaugural Shanghai Cooperation Organisation (SCO) Startup Forum was launched in October 2020 to collectively develop and enhance startup ecosystems.

4. Prarambh: The ‘Prarambh’ Summit offers a platform for startups and young innovators worldwide to present new ideas, innovations, and inventions.

What Next?

As of this year, there are over 128,000 startups in India, and the startup ecosystem continues to grow stronger. Although the taxation structure and regulatory policies are currently stringent, we can expect them to become more favourable and supportive of startup growth in the future. For more informative blogs, follow TradeFlock on social media and visit our website for daily news updates on the latest hot topics worldwide.

Frequently Asked Questions

Who introduced Startup India?

The government of India introduced Startup India.

What are the three pillars of Startup India?

  • Funding support and incentives to the various start-ups in the country
  • To provide Industry-Academia Partnership and Incubation
  • Simplification and Handholding

Who is eligible for a startup in India?

Any Indian who is or above the age of 18 is eligible to run their own startup. 

What is the life cycle of a startup?

There are 3 stages of a startup

  • Early-stage
  • venture-funded (growth) stage 
  • Late stage

Who is the youngest startup founder in India?

Tilak Mehta, a young adolescent, is the CEO and founder of the tech enterprise.

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