The Growing Indian Startup Ecosystem: Drivers, Support System

and Challenges

S. S. Khanka, M. Com., Ph. D.

Professor (HR)
University School of Management & Entrepreneurship,
Delhi Technological University
(Formerly Delhi College of Engineering),
East Delhi Campus, Vivek Vihar, Phase II,
Delhi – 110 095
&
National Trainer on Ethics and Values in Public Governance recognized by Department of
Personnel and Training (DoPT), Government of India in collaboration with the United Nations
Development Programme (UNDP)

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 The Growing Indian Startup Ecosystem: Drivers, Support System
and Challenges

Abstract

Industrial history bears evidence that startups have played a pivotal role in industrial and
economic development of economies world over. In India too, startups have been serving as
important engines for growth and jobs generation and, therefore, have been receiving increasing
attention and support from the Government. Today, India boasts of having the third- largest
startup ecosystem in the world after United States, Europe and China. The present paper analyses
the current state of startup ecosystem in India with three objectives in mind: (i) To provide an
understanding on the drivers and motivators that led to growth of startup ecosystem in India. (ii)
To delineate the support system in place to support startups in the country. (iii) To portray
development of startups in India. (iv) To highlight the unique challenges the Indian startups
struggle with. The analysis is based on data collated from various secondary sources like the
Government publications, websites, research articles, inputs / feedback from some officials
involved in startup schemes and also from some startup founders / entrepreneurs.
Keywords: Startup Ecosystem, Entrepreneurship, Innovation, Incubator

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 Introduction
What is a ‘startup’? The Government has defined startup as entities, which are in the
early stages of setting up their operations and work towards innovation, development,
deployment, and commercialization of new products, processes, or services driven by technology
or intellectual property (Dwivedi 2016). Startup is different from entrepreneurship in the sense
while startups refer to the new businesses that intend to grow large beyond the solo founder,
entrepreneurship refers to all new businesses, including self-employment and businesses that
never intend to grow big or become registered. A startup founder is different from an
entrepreneur in the sense while the former has motive to create a product or service to change the
world, the latter has a motive to earn profits or create wealth.
Like in other countries in the world, India also recognized the role of startups as
important engines for job generation and economic growth. Evidently some startups have already
founded in the 2000s. However, the startup ecosystem then could not make its headway for the
limited availability of investors and support pillars such as incubators and accelerators. In
consequence, some successful startups exited from the scene in the late 2000s. India launched a
massive planned initiative especially since 2016 to build a strong startup ecosystem in the
country (Agarwal 2016). Since then, their number are on rise. To quote, there are over 14,600
Startups recognized under Startup India spread across 479 districts, covering all 29 States and six
Union Territories. A corpus named Fund of Funds (FFS) of Rs. 10,000 Crore has been set-up to
provide fund during the growth state of startups. By now, India has the third- largest startup
ecosystem in the world after United States, Europe and China. In India, Bangalore has emerged
as Silicon Valley of India’s primary startup hub followed by Mumbai and the National Capital
Region (NCR) in that order.
Before we understand what is startup ecosystem, let us first understand what an
ecosystem is. An ecosystem is a community that includes all of the living things (plants, animals,
and organisms) in a given area that interact with each other, as well as the non-living
environments (weather, earth, sun, soil, climate, atmosphere) that surround the living things.
Each ecosystem has its own community. In the similar vein, a startup ecosystem is a community
formed by people, startups and various organizations in a particular location at a point of time,
interacting with each other so as to serve as a system to create and scale new startups.

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 The aim of the present paper is to provide a systematic and comprehensive understanding
of startup ecosystem in India classified under four sections. Section I analyses the drivers of
startups in India, Section II portrays the support system available for startups, Section III the
development of startups in India, and Section IV highlights the unique challenges the Indian
startups face. The paper concludes by highlighting the necessary further actions to be taken to
further strengthen startup ecosystem of India.

I. Drivers of Startups in India

Startups do not exist in silos, but are part of the broader economy. So, the drivers of the
Indian startup ecosystem need to be analyzed and understood in the context of overall business
environment. Accordingly, five key factors have been identified as major drivers of the Indian
startup ecosystem during the recent periods.
1. The Burgeoning Market
Indian market has witnessed a huge transformation from closed to open especially since
1991 with the introduction of economic reforms like LPG (i.e. Liberalization, Privatization and
Globalization). Today, the Indian market is characterized as “the posterchild of emerging
markets” in the world mainly because of two driving forces. One, huge population size (1.3
billion, i.e. equivalent to 17.71% of the total world population) of India provides vast and varied
market potential for goods and services to be manufactured and sold. India’s vast population
offers demographic dividend in the sense India has more than 50% of its population below the
age of 25 and more than 65% below the age of 35. The youth and young population are known
for high material ambition and also ability to spend to make ambitions a reality (World
Economic Forum 2019). Second, around 7 % growth of India’s Gross Domestic Production
(GDP) during 2017-18, India is recognized as one of the fastest-growing large economies in the
world (World Bank 2019).
With continued growth in the economy, the economy of India is characterized as a developing
market economy (Alamgir 2008, Kanungo, Rowley and Banerjee 2018). By now, it has emerged
as the world's fifth-largest economy by nominal gross domestic production (GDP) and the third-
largest by purchasing power parity (PPP) (IMF 2019). Both income and purchasing power in
India have been increasing steadily. With rising upper-middle and high-income population
segment, consumption level has also conspicuously increased which is expected to grow from

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being one in four households today, to one in two households by 2030 (World Economic Forum
2019). These well augur for growth of startups in India.
2. Technological Advancement
Technology is the application of scientific knowledge for practical purposes, especially in
industry. With technological advancement which some prefer to call technological revolution,
businesses especially startups use technology to offer products and services to solve the market
problems. Tech startups deliver either new technology products / services or deliver existing
technology products / services in new ways. Compared to large companies, it is easier for
startups to build technology-based organizations as these are more agile and able to disrupt the
existing processes. Cost reduction in performing business functions like hiring, selling, customer
feedback, to name a few, is one of the greatest advantage technologies offers to startups. Today,
there is much ingestion of technology in every aspect of business. That is why the brands like
Ola, Uber and many have enjoyed impressive success as they have used technology as the heart
of their business functions.
Given the huge size of Indian market, on the one hand, and limited resource availability,
on the other, there is need for low-cost and high-impact solutions to solve the social problems. In
such scenario, because of their inherent potential for scalability and exponential growth, tech
startups are found playing a crucial role in solving problem. It is against such backdrop; the
Government of India launched the ‘Digital Saksharta Abhiyan’ (DISHA) or ‘National Digital
Literacy Mission (NDLM)’ in October 2017 with objective to improve digital literacy in the
country. That, India has since then improved her digital connectivity is indicated by fast and
wide broadband penetration expected to increase by 44 percent over the next four years
(Sengupta 2018) and the number of internet users is projected to touch 666.4 million by 2025
(Anonymous 2015). With increased digital connectivity, market access barriers have been
brought down in the country. Increasing digitization has greatly eased doing business in terms of
making payments and receiving the benefits of the Government schemes on subsidies and
incentives. Aadhaar biometric ID system, introduced in 2009, and the digital payments systems
being the part of the ‘India Stack’ are sure to help India plunge into the ‘Digital Economy’ in the
world Gupta, (Arvind and Auerswald 2017). Also, increased financial inclusion, on the one hand,
and the historic banknote demonetization in 2016, on the other, have led to fintech startup boom
in the country. Fintech startups emerged as the top funded sector in 2018 (Inc42 2018).

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3. Political Environment
Political environment is the first one of the important constituents among PESTEL (i.e.
Political, Economic, Social, Technological, Environmental and Legal) that form overall business
environment. Political environment implies the approach and focus of the Government of the day
towards industrial development. It could be encouraging or otherwise. That the approach of the
present Government since 2014 towards industrial and economic development has been very
supportive is reflected by various schemes and policies of the Government like Startup India,
Standup India, Make in India, Digitalization, Innovation Centers, incubators, and Tinkering
Labs.
Over 26 states in the country have formulated Startup policies. Creation of ‘Fund of
Funds’ of US$ 1.6 Billion, financial support for incubators, establishment of tinkering labs,
provision for tax benefits, and a simplified recognition process for the setting-up of businesses
are yet more measures the Government (i.e. the Political Power) in the country has initiated to
encourage development of startups in the country. The results of these initiatives are encouraging
as India has emerged among the four most vibrant startup ecosystem in the world after US,
Europe and China (Startup India 2019). The Government of India declared 2010-20 as the
Decade of Innovation.
4. Increasing Inclination to Innovation
Entrepreneurs solve social problems / needs by offering what is required by the society.
Social requirements keep on changing and, hence, entrepreneurs do need to search for what and
how to offer to satisfy the changing social needs. As opined by Thomas Adison, “There’s a way
to do it better — find it” and Peter Drucker (1985), “Innovation is the hallmark of
entrepreneurship, here comes innovation i.e., the creation of the new or the re-arranging of the
old in a new way.
Recognizing the role of innovation in national economy, the President of India declared
2010-20 as the ‘Decade of Innovation.’ Also, an umbrella programme ‘National Initiative for
Developing and Harnessing Innovations (NIDHI)’ was initiated by the Department of Science &
Technology (DST) for nurturing ideas and innovation into successful startups. With an aim to
bring all the benefits of Science, Technology & Innovation to the sustainable and inclusive
growth of the nation, the Department of Science & Technology (DST) has formulated the

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Science, Technology and Innovation Policy (STI) 2013. Basically, the policy seeks to focus on
both STI for people and people for STI.
5. Changing Perceptions towards Entrepreneurship

Entrepreneurship or business as a career was not regarded as much respectable as

was regarded salaried job till other day in India. Then, the popular notion was
entrepreneurship is for those who belong to business background only. That is
entrepreneurs are born. But that is now no longer the case. Thanks to the Government
initiatives and efforts, people’s perception toward entrepreneurship over the period has
changed to favourable. Imparting education on entrepreneurship from school level to
higher education, establishment of a premier Entrepreneurship Development Institute of
India (EDI), Ahmedabad (Gujarat), one Centre / Institute for Entrepreneurship in each
State, and offering various support, incentives, concessions by the Government to
establish small-scale enterprises and startups in the country have helped create
entrepreneurial culture in the country. Now, a change in perceptions among the broader
society is quite noticeable. The emergence of increasing number of successful entrepreneurs
/ startups making great contribution to the development of the country have emerged as
entrepreneurial heroes / idols to be followed by the prospective ones. All these have
contributed to build a perception that entrepreneurs are made. Entrepreneurship has by now
emerged as a separate respectable and glamorous profession in India with eve r
increasing social ac ceptability.
6. Ease of Doing Business
The cumbersome procedure to be followed in establishing and conducting small
business and startups made business environment harsh. Hence, either people were not
daring to undergo the complex trial to start and run an enterprise or were giving up during
the process. This made negative impression about doing business in India. In view of this,
the Government initiated measures to make doing business easy in India. The major
measures included the single window system slashing the requirements and time taken for
starting a new business from 10 process and 18 days to 5 processes and 5 days. In other words,

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one is now able to start a new business in India in just 5 days. As per the World Bank's ease of
doing business ranking (World Bank Report 2019), India has jumped 14 places to take the
63rd position from 77 th, in 2018.In its Doing Business 2020 report, the World Bank has
recognized and commended India as one of the top 10 performers on the list for the third
time in a row. Doing business easy has been attracting increasing number of people to
business and industry in India. The Ministry of Corporate Affairs has unveiled the two new
web-based forms - ‘Spice Plus’ and ‘Agile Pro’ to replace six forms currently required to provide
access to GSTIN, PAN, TAN, ESIC, EPFO, DIN, bank accounts and professional tax (Economic
Times 2020).

II. The Support Schemes for Startups

The startups have emerged as new hopes for India especially since 2014 when the present
NDA Government came to power. Extolling the role of startups in the Indian economy, Shri
Narendra Modi, Prime Minister of India says, “I see startups, technology and innovations as
exciting and effective instruments for India’s transformation.” To achieve this position, the
Government of India has launched various startup schemes missioned towards boosting the
Indian startup ecosystem (see Table 1).
Table 1: Startup Schemes of the Government of India
Name of the Scheme Headed By Industry Applicable Fiscal Incentive (T&C
Applied)
Support for IT Services, analytics, Up to INR 15 Lakhs per
International Patent enterprise software, technology invention or 50% of the
Department of
Protection in hardware, Internet of Things, total expenses incurred in
Electronics and
Electronics & AI filing and processing of
Information
Information the patent application
Technology (DeitY)
Technology (SIP-EIT) upto grant, whichever is
lesser.
IT services, fintech, enterprise Sales in the DTA up to
software, analytics, AI 50% of the FOB value of
exports is permissible and
Software Technology Software Technology
depreciation on computers
Park (STP) Scheme Parks of India (STPI)
at accelerated rates up to
100% over 5 years is
permissible.
Scheme to Support Department of IT services, analytics, Organizations are
IPR Awareness Electronics and enterprise software, technology provided with a grant
Seminars/Workshops Information hardware, Internet of Things, between INR 2 Lakhs to
in E&IT Sector Technology (DeitY) AI INR 5 Lakhs.
NewGen Innovation NewGen Innovation Chemicals, technology Provide a limited, one-
and Entrepreneurship and Entrepreneurship hardware, healthcare & time, non-recurring
Development Centre Development Centre lifesciences, financial assistance, up to
(NewGen IEDC) (NewGen IEDC) aeronautics/aerospace & a maximum of INR 25

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 defence, agriculture, AI, Lakhs.
AR/VR (augmented + virtual
reality), automotive,
telecommunication &
networking, computer vision.
MSMEs will be helped
avail economies of
purchases like bulk
purchase, cash discount,
National Small
Raw Material etc. Also, all the
Industries Corporation Sector-agnostic
Assistance procedures,
(NSIC)
documentation and issue
of letter of credit in case
of imports will be taken
care of.
Micro and small
enterprises will get
Single Point National Small
exemption from payment
Registration Scheme Industries Corporation Sector-agnostic
of Earnest Money Deposit
(SPRS) (NSIC)
(EMD) and will be issued
tender sets free of cost.
Aspire - Scheme for
promotion of Agriculture, pets & animals,
Steering Committee, Based on nature of
innovation, social impact, healthcare & life
Ministry of MSME existence of the incubator
entrepreneurship and sciences
agro-industry
For a deposit of six
National Small months refundable rent,
Infrastructure
Industries Corporation Sector-agnostic an office space of 467
Development Scheme
(NSIC) sq.ft. to 8,657 sq.ft. is
provided.
Chemicals, technology
hardware, healthcare & life
sciences, aeronautics/aerospace
& defence, agriculture, AI,
AR/VR (augmented + virtual
reality), automotive,
AIM will provide a grant-
telecommunication &
Atal Incubation Atal Innovation in-aid of INR 10 Cr to
networking, computer vision,
Centres (AIC) Mission (AIM) each AIC for a maximum
construction, design, non-
of five years
renewable energy, renewable
energy, green technology,
fintech, Internet of Things,
nanotechnology, social impact,
food & beverages, pets &
animals, textiles & apparel.
Atal Tinkering Atal Innovation Chemicals, technology AIM will provide grant-
Laboratories Mission hardware, healthcare & in-aid that includes a one-
lifesciences, time establishment cost of
aeronautics/aerospace & INR 10 Lakhs and
defence, agriculture, AI, operational expenses of
AR/VR (augmented + virtual INR 10 Lakhs for a
reality), automotive, maximum period of five
telecommunication & years to each ATL.
networking, computer vision,

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 construction, design, non-
renewable energy, renewable
energy, green technology,
fintech, Internet of Things,
nanotechnology, social impact,
food & Beverages, pets &
animals, textiles & apparel.
Eligibility: Schools (Grade VI –
XII) managed by the
Government, local body or
private trusts/society can apply
to set up an ATL.
Chemicals, technology
hardware, healthcare &
lifesciences,
aeronautics/aerospace &
defence, agriculture, AI,
AR/VR (augmented + virtual
Grant-in-aid support of
reality), automotive,
Scale-up Support to INR 10 Cr will be
telecommunication &
Establishing NITI Aayog provided in two annual
networking, computer vision,
Incubation Centres instalments of INR 5 Cr
construction, design, non-
each.
renewable energy, renewable
energy, green technology,
fintech, Internet of Things,
nanotechnology, social impact,
food & Beverages, pets &
animals, textiles & apparel.
INR 750 Cr has been
Udaan Training
National Skill earmarked for the
Programme For
Development Education, human resources implementation of the
Unemployed Youth Of
Corporation (NSDC) scheme over a period of
J&K
five years
The incentives differ with
National Bank for
Dairy Agriculture, pets & animals, respect to the cost of the
Agriculture and Rural
Entrepreneurship social impact, food & required equipment or
Development
Development Scheme beverages. establishment of the
(NABARD)
facilities
MUDRA offers
incentives through these
interventions: >Shishu:
Micro Units covering loans upto INR
Pradhan Mantri Mudra Development and 50,000/- > Kishor:
Sector-agnostic
Yojana (PMMY) Refinance Agency Ltd. covering loans above INR
(MUDRA) 50,000/- and upto INR 5
Lakhs > Tarun: covering
loans above INR 5 Lakhs
and upto INR 10 Lakhs
Composite loan between
INR 10 Lakhs and INR 1
Small Industries
Cr to cover 75% of the
Stand Up India Development Bank of Sector-agnostic
project cost can be taken
India (SIDBI)
up, inclusive of term loan
and working capital.
Sustainable Finance Small Industries Green Energy, Non-renewable Suitable assistance by

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 way of term loan /
working capital to ESCOs
Development Bank of Energy, Technology Hardware,
Scheme implementing EE / CP /
India (SIDBI) Renewable Energy
Renewable Energy project
provided.
SIDBI Make in India The loan amount granted
Soft Loan Fund for Small Industries is based on category
Micro Small and Development Bank of Sector-agnostic entrepreneur lies in.
Medium Enterprises India (SIDBI) (General, women,
(SMILE) SC/ST/PwD)
The financial assistance
Small Industries provided is need-based,
Startup assistance
Development Bank of Sector-agnostic subject to a maximum of
Scheme
India (SIDBI) INR 200 Lakhs and equity
kicker
Support is primarily given
to encourage participation
Science and Chemicals, healthcare & life of young scientists and
Ayurvedic Biology
Engineering Research sciences, nanotechnology, research professionals in
Program
Board (SERB) social impact. such events along with
nominal support for pre-
operative expenses.
Chemicals, technology
hardware, healthcare &
lifesciences,
aeronautics/aerospace &
defence, agriculture, AI,
Provided support for
AR/VR (augmented + virtual
project staff salaries,
reality), automotive,
Technology Science and equipment, supplies and
telecommunication &
Development Engineering Research consumables, contingency
networking, computer vision,
Programme (TDP) Board (SERB) expenditure, patent filing
construction, design, non-
charges, outsourcing
renewable energy, renewable
charges, etc.
energy, green technology,
fintech, Internet of Things,
nanotechnology, social impact,
food & beverages, pets &
animals, textiles & apparel.
SPARSH (Social
Innovation programme Biotechnology Industry The loan and grant are
for Products: Research Assistance Healthcare & life sciences provided according to the
Affordable & Relevant Council (BIRAC) startup stage.
to Societal Health)
Support grant is provided
Promoting Innovations under categories such as
Council of Scientific &
in Individuals, Startups Sector-agnostic PRISM Phase I, PRISM
Industrial Research
and MSMEs (PRISM) Phase II and PRISM-
R&D Proposals.
Science and
Technology of Yoga Department of Science
Healthcare & life sciences Not specified.
and Meditation and Technology (DST)
(SATYAM)
Biotechnology Ignition Biotechnology Industry Healthcare & life sciences Up to INR 50 Lakhs for
Grant (BIG) Research Assistance research projects with a
Council (BIRAC) commercialization

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 potential with duration of
up to 18 months are
provided.

Source: inc42.com > buzz > startup-scheme-indian-government--startups

It is evident from above table that a robust support system is created in India to boost the
startup culture in the country. Now, it seems in logical order to look at the development of
startups against the support system created in the country.

III. Startup Development

The Indian startup ecosystem has evolved since mid-80s when the Prime Minister Rajeev
Gandhi declared ‘Liberalization of Computer Industry’ followed by the establishment of The
National Association of Software and Services Companies (NASSCOM) in 1988. Because of
poor broadband penetration, poor internet connectivity and non-availability of required support
structures, startups could not make much headway during the late nineties. In the next decade,
the situation changed albeit slowly. From thereon, the Indian startup’s ecosystem progressed
gradually. The startup ecosystem got increased boost up especially from 2014 onwards when the
National Democratic Alliance (NDA) Government led by Shri Narendra Modi came into power.
The series of important measures taken up by the Government include Startup India (15 August
2015), Standup India (5 April 2016), Incubation Centers, Atal Tinkering Innovation Labs, Make
in India (25 September 2014), and Digital India (1 July 2015). The result of these initiatives
appears quite visible and encouraging as in just half a decade (2014-2019), the number of
startups has ballooned to 49,000, while creating a combined value of $130 Bn, receiving over
$58 Bn in capital inflow across 5,000+ deals. The pace of growth in the startup ecosystem has
increased to 15% year-on-year, while the growth of the number of incubators and accelerators
has grown to 11%. Significantly, the number of women startups stood at 14%, up from 10% in
the previous year. Bangalore is ranked as one of the five fastest growing startup cities in the
world (Inc42 2019).
A Bangalore-based InMobi, a Mobile Ads startup became the India’s first unicorn, with a
valuation of at least $1 billion, in 2011. Since then, there is no looking back in startups assuming
the status of unicorn (see Table 2).
Table 2: Growth of Indian Unicorns
Nos. Startups Valuation Sector Location Year

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 (in $B)
1 InMobi 1 Mobile Ads Bangalore 2011
2 Flipkart 21 E-Commerce Bangalore 2012
3 Mu Sigma 1.5 Analytics Bangalore 2013
4 Snapdeal 6.5 E-Commerce Delhi 2014
5 Zomato 3 Foodtech Gurugram
6 Quikr 1.6 Classifieds Bangalore
7 Paytm 16 Payments Noida
8 2015
Ola 6 Ride Hailing Bangalore
9 Shopclues 1.1 E-Commerce Gurugram 2016
10 Hike 1.4 Messaging Delhi
11 PolicyBazaar 1 Insurance Tech Gurugram
12 Swiggy 3.3 Foodtech Bangalore
13 Paytm Mall 3 E-Commerce Noida
14 Byjus Classes 8 Edtech Bangalore 2018
15 BillDesk 1.5 Payments (B2B) Mumbai
16 Freshworks 3.5 Saas Chennai
17 Udaan 2.8 E-Commerce (B2B) Bangalore
18 Oyo Rooms 10 Budget Hotels Gurugram
19 Lenskart 1.5 Eyewear Bangalore
20 Ola Electric 1.1 Mobility Bangalore
21 Citius Tech 1 IT-Healthcare Mumbai
22 Icertis 1 Contract Management Pune 2019
23 Druva Software 1 Data Management Pune
24 Rivigo 1 Trucking Services Gurugram
25 BigBasket 1 Groceries Bangalore
26 Dream11 1.1 Gaming Mumbai
27 Delhivery 1.6 Logistics Services Gurugram

Source: www.ventireintelligence.com>Indian-Inicorn-Tracker
Emerging as many as 17 i.e. 63% unicorns during the last 2 years (08 in 2018 and 9 in
2019) alone indicates likely good growth of Unicorns in India in years ahead. Majority of
unicorns (08 unicorns i.e. 41%) are produced in Bengaluru alone. Bengaluru referred to as the
"Silicon Valley of India" is the startup hub having the largest number of tech start-ups in the
country and third largest in the world. By now, India has emerged as the second-largest startup
ecosystem in the world. These all facts indicate that the Indian Startup economy has just stepped
into a new era.
In just half a decade (2014-2019), the number of startups in India has just ballooned to
49,000, creating a combined value of $130 billion, and receiving over $58 billion in capital
inflow across 5000+ deals. Around 9,000 of these are technology led startups, 1300 new tech

13
startups were born in 2019 alone implying there are at least 3 tech startups born every day in the
country. With the present acceleration, the number of startups in India is expected to cross
100,000 with over 100 unicorns, creating more than 3.25 million jobs by 2025 (Inc42 2019).

IV. Challenges of Startups in India

No doubt, startup India scheme has by now developed to a stage occupying the fourth
place as the most vibrant startup ecosystem in the world after US, Europe and China. Yes,
startups all over the world struggle with some challenges, yet certain challenges are more
peculiar to the Indian startup ecosystem. The five most peculiar challenges the Indian startups
face have been highlighted here. 
Harsh Business Environment: That the Indian business environment is a harsh business
environment is indicated by the World Bank Ease of Doing Business index ranking India 63 rd of
190 countries and 137th of 190 countries in the World Bank Starting a Business Ranking index
(Global Entrepreneurship Monitor 2019). The reason is not difficult to seek. On the whole,
startups in India are encumbered by cumbersome regulatory formalities to be completed by a
startup founder. Many startup founders find it difficult to go through the trails of regulatory
complexities. So, they either do not initiate to found the startups or give up the idea in the
process.
The Government’s tax policy and its enforcement are considered unfriendly for startups
for several reasons. For example, there is no clarity on working and items applicable as tax base
or not in case of the Good and Services Tax (GST), introduced in July 2017. Earlier, the startups
were required to file their taxes regularly, even if they do not yet generate any revenue. This
made many startups run into the danger of liquidity. Recently in August 2019, the Government
of India has announced that ventures that are registered with India’s Department for Promotion
of Industry and Internal Trade (DPIIT), will no longer be subject to the tax (Arakali 2019).
Diversity and the Digital Divide: In order to build successful products, startups need to
develop adequate understanding of the customers’ needs. This is particularly difficult in the
Indian context highly diverse with a plethora of cultures, languages, ethnicities and religions. As
such, the startups’ understanding of the highly diversified customers is often limited to certain
regions known to the startups. Thus, startups become unable to take advantage of comparative
advantages linked to other specific regions. This makes building up a pan-Indian startup difficult.
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 Most startup founders are well-educated and come from metro cities. However, nearly 70
percent of the Indian population still lives in rural areas (Business Standard 2013) suggesting the
mass customers with low-income background. As such, startups often have an insufficient
understanding of the customers and their needs. This builds a disconnect between the startup
founders and the customers.
Problem in Hiring Qualified Employees: There are four unique reasons that make
hiring qualified and competent employees difficult in the Indian startups. One, job seekers do not
find startups as attractive employer due to inherent risk that startups might fail. Two, because of
their small-base and meagre funds, startups hardly compete with the reputation and
compensation structure of large corporations. That is many of those starting working for startups
for a few years switch to large corporations. Opposite to occur is less likely because they get
used to the benefits of a large corporation. Third, there is a gap between knowledge imparted to
students in the colleges and universities and the knowledge and skill needed to actually perform
a job. As the fresh graduates are usually not readily employable from the beginning, startups
have to invest significant amount of time and cost to train new employees which many startups
cannot afford. Four, while a good number of highly qualified and skilled manpower moves
abroad for jobs, startups find themselves unable to attract and hire employees from outside India
because of relatively lower level of living standard in India compared to other places like
Singapore and Australia.
The Absence of Appropriate Government Policy: India is a country characterized by
its vastness and diversity. Just as a common size shirt does not fit all, a common startup policy
cannot be suitable to all parts of the country. Hence, the need for appropriate startup policy
suitable to different regions needs not to be kept in back burner any longer.
Dependence on Gut-feeling: Not much attention is paid to know what the customers
actually need. Customers choices and preferences for products or services keep on changing
which are known not automatically but through market research. Market research involves costs
in terms of manpower and money. Because the founders of startups have generally meagre funds,
they hardly can afford for market research purposes. As such, startups depend on gut-feeling
which is likely to be different from reality.
Lack of Experimentation: Experiments give experience and experience provides right
answers to many problems startups face. But, experimentations in startups are either avoided or

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stymied mainly for two reasons. One, experimentation involve turnaround time / gestation
period. Two, startups, because of their meagre funds, cannot afford cost involved in
experimentations. As such, decisions are taken on rule of thumb basis i.e., trial and error basis
which are more often than not likely to be inappropriate or wrong decisions.

Concluding Remarks
A report by IBM Institute for Business Value and Oxford Economics found that 90
percent Indian startups fail within the first five years. Again, a far smaller number of
international patents applied by India (1,423) compared to her counterparts such as Japan
(44,235), China (29,846) and South Korea (14,626) suggests still much to do to promote
innovation in startups in India. One way to promote innovative culture in startups in India could
be: Make in India and Startup India must include Innovate in India. Just being schemes in place
may not yield desired results unless these are implemented in letter and spirit. A regular and
strict follow-up scheme must be in exercise to ensure right execution of the schemes and strict
actions against those responsible for poor / improper execution of the schemes must also be in
place and practice. Startups performing excellently must be recognized and rewarded to motivate
them and others to further improve performance of their startups. In a country like India with
vast diversity in different terms, a pan-India startup policy is just impractical. Hence, tailor-made
startup policies must be developed to harness the unique potential provided by different regions /
states of the country. We hope earlier these corrective measures are applied, better will be startup
ecosystem in India.

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