Daily Editorial Analysis

Indian startup ecosystem Startup20 (GS Paper 3, Economy)

Context:

• With the introduction of the first-ever engagement group, Startup20, under India’s G20 presidency, the Indian startup ecosystem is making strides toward global recognition and impact.
• This initiative emphasises the importance of startups in driving economic growth and innovation and the country’s commitment to promoting the ecosystem globally.

 

Background:

• Over the past decade, the Indian startup ecosystem has come a long way. With the rise of digital technologies and an increasing number of young entrepreneurs, the country is now home to the third-largest startup ecosystem in the world.
• With a growing economy, increasing technological advancements disrupting traditional business models, and a large pool of talented individuals, the scope for Indian startups is immense in various sunrise and sustainable development sectors such as green energy, health tech, deep tech, and clean mobility.
• Coupled with this is the government’s support, with initiatives such as the Startup India programme, Atal Innovation Mission, and Production-Linked Initiative schemes (PLI) that create an environment conducive to their success and growth.

 

Startup20:

• Startup20 brings together entrepreneurial ecosystems from member countries to exchange ideas, collaborate on initiatives, and drive development worldwide.
• The engagement group’s goal is to create a platform for businesses to engage with policymakers and key stakeholders to foster an environment that encourages collaboration.

 

Focus areas:

• Indian startups are diverse, encompassing domains ranging from health and climate tech to clean energy and deep tech.
• They are well-positioned to take advantage of the opportunities presented by the sunrise sectors, industries poised for rapid growth and likely to play a significant role in driving the country’s economic progress.

 

EV sector:

• The electric vehicle (EV) industry is one such sunrise sector where India aims to shift gears with the ambitious target of having 30 percent of its vehicles powered by electricity by 2030.
• The government’s push toward green mobility unlocks enormous opportunities for businesses to explore and create charging infrastructure, battery recycling, and energy storage solutions.
• EV companies witnessed the highest-ever funding in 2022, with a year-on-year increase of 117 percent. Additionally, government initiatives like the Faster Adoption and Manufacturing of (Hybrid &) Electric Vehicles (FAME) scheme further incentivise EV adoption.

 

Clean energy:

• Another sunrise sector is clean energy, which promises a golden opportunity for companies to develop cutting-edge solutions to innovate further solar panels, wind turbines, and energy storage systems.
• CleanMax, ReNew Power, and John Cleantech are companies operating at the forefront of this industry and helping to drive clean energy growth.

 

Drones:

• With a major focus on indigenous drone manufacturing and adoption, the government plans to make this a US$ 20 billion industry by 2030.
• A range of positive steps such as the ban on the import of drones, an INR 120 crore PLI scheme and a centralised drone certification scheme, taken in recent times, provide an impetus to this target.
• With drones having countless applications, startups are working in the domains of irrigation, security, surveillance, transport, etc. The sector saw funding more than double in 2022 than the previous year, with ideaForge, Garuda and Skylark Drones emerging as the pioneers.

 

Agriculture:

• Agriculture is a critical sector of the Indian economy. Still, it faces several challenges, including declining soil fertility, water scarcity, and the impact of climate change.
• Indian businesses can contribute to sustainable development by promoting sustainable agriculture solutions. Ag-tech startups, currently in their nascency, with only 1.5 percent penetration, represent a US$ 24 billion opportunity over the next four years.
• Companies such as AgroStar, Bijak, and BharatAgri are helping the agriculture sector flourish by providing access to innovative solutions that promote sustainable agriculture practices.

 

Social entrepreneurship:

• Social entrepreneurship refers to creating businesses that aim to generate positive societal and environmental impact, as well as financial returns.
• In India, this type of entrepreneurship plays an increasingly important role in driving progress towards a more sustainable and equitable future.
• In recent years, social entrepreneurship in India has increased as more people recognise the need for creative solutions to some of the country’s most pressing social and environmental issues.
• The growing awareness of sustainable solutions is one of the key growth factors for social entrepreneurship. With concerns like poverty, inequality and environmental degradation becoming more urgent, many people are looking for innovative solutions.
• Impact enterprises in India mobilised over US$ 6.8 billion in India, with climate tech at the forefront. These types of ventures also allow individuals to create businesses that have a positive impact on society while producing financial returns.
• The private sector is also playing an increasingly important role in supporting entrepreneurs. Many companies are investing in social enterprises, either through direct investment or through corporate social responsibility (CSR) initiatives.

 

Challenges:

Lack of investment:

• However, significant challenges still need to be addressed to ensure India’s social entrepreneurship’s long-term success. Social enterprises often face difficulty in securing investment, as many investors are still cautious about investing in untested business models and technologies.
• This lack of investment can limit the ability of social enterprises to scale their operations and bring their solutions to market, putting a brake on their impact.

 

Barrier to entry:

• Despite initiatives launched by the government, many enterprises still face difficulties navigating the regulatory environment and obtaining the necessary approvals and licences for operation. This can be a significant barrier to entry and can limit an enterprise’s ability to bring its solutions to market.

 

Lack of infrastructure:

•  A lack of reliable and affordable infrastructure can limit social enterprises’ capacity to reach their target customers and bring their solutions to market.
• For example, many enterprises in clean energy face difficulty accessing the grid, making it challenging for them to sell their excess energy to the grid and reach a broader customer base.

 

Need for skilled force:

• Finally, a major challenge that businesses face is the need for more skilled talent.
•  To scale their solutions, these enterprises frequently require specialised skills and expertise, such as engineering and technical knowledge.

 

Conclusion& Way Forward:

• While significant steps have been taken in recent years to boost the startup ecosystem, a lot more still needs to be done for India to emerge as a global entrepreneurial hub.
• Incentivisation schemes to fast-track adoption such as Drone and Kisan Shakti should be expanded to include emerging technologies in other sectors as well. The introduction of policy frameworks guiding companies operating in upcoming sectors allay investors’ fears and signals the intentions of the government to accelerate development.
• Startups hitherto exist mostly on the urban landscape but government-backed dedicated funds and skill development programmes can make Tier 2, Tier 3, and rural areas also surf the current startup wave to boost local economies and help solve problems that are unique to these areas.
• Indian startups can help to create a more sustainable future for all by developing innovative solutions and new business models.