Analysis of Indian startup ecosystem

Abstract

A staple statement in any course or study related to entrepreneurship goes something like this – "99% of start-upsfail". Regardless of what geography one is talking about this statement about start-ups could be heard over and over. So is the case in India too. Start-ups in India have received increased attention in recent years. Over the past few years, starting up or working for a start-up has become a legitimate option for the youth of this country. Start-ups are now widely recognised as important engines for growth and job creation. Through technology and business model innovation, start-ups are creating impactful solutions at scale and transforming industries. The Government, under Prime Minister Narendra Modi, who assumed power in 2014, put digital transformation at the centre of its plans. The Modi government has made various efforts to support start-ups. The flagship initiative, "Startup India", was initiated by the prime minister in 2016 "to build a strong ecosystem that is conducive for the growth of start-up businesses, to drive sustainable economic growth and generate large scale employment opportunities." The Government has also opened public procurement for start-ups wherein start-ups can also bid for government contracts. Understanding their importance, some state governments are coming up with policies to help the start-up ecosystem. Although most of these policies seem well-intentioned, they do not create the impact that is expected out of them. An example of this is the ESOP taxation relief that the Honourable Finance Minister mentioned during the Budget speech. Even though it is a step in the right direction, in the fine print, it is evident that the benefit is limited to start-ups with a turnover of less than ?100 Cr. That leaves many wanting more. Another issue is the back and forth with policies and not clearing the ambiguity around key issues. A good example of this is how the Government handled the so-called "Angel Tax", which was introduced in 2012 with the aim to thwart money laundering. Along with regulatory challenges and policy ambiguity, start-ups in India face a lot of other problems. Some of these challenges are in logistics, the low willingness to pay of the Indian customer and to hire qualified talent. While the 99% statement has become a kind of rule for the start-up ecosystem, if by effective analysis of fundamental problems, the failure rate of start-ups can be reduced by even one percent it would be highly beneficial for the ecosystem. This study tries to understand the fundamental challenges for start-upsin India which persistsregardless of all initiatives by Government and tries to pinpoint the root causes of these problems in the hope that it might help to solve these problems.