The rise of startup ecosystem in India : A comprehensive analysis

The rise of startup ecosystem in India : A comprehensive analysis

KEY POINTS

● The startup ecosystem in India has seen exponential growth over the past decade, transforming the country’s economic landscape.

● Between 2016 and 2023, India saw the recognition of over 100,000 startups, which contributed to the creation of more than 1.2 million jobs.

● Maharashtra emerges as the frontrunner with the highest number of recognized startups, boasting 21 thousand startups.

● IT Services sector experienced remarkable growth in India’s startup landscape from 2016 to 2023.

The rise of startups in India

The startup ecosystem in India has seen exponential growth over the past decade, transforming the country’s economic landscape. India has become a hotspot for entrepreneurial activity with a burgeoning youth population, increasing internet penetration, and supportive government policies. In 1991, the liberalization of the Indian economy set the stage for entrepreneurial ventures by reducing bureaucratic hurdles and opening the market to global competition. However, the dawn of the internet and technological revolution in the early 2000s truly ignited the startup culture in India. The success stories of companies like Infosys and Wipro inspired a new generation of entrepreneurs ready to innovate and disrupt traditional business models.

Key drivers of startup growth

India has one of the largest youth populations in the world, with over 65% of its population under the age of 35. This demographic advantage provides a vast talent pool and a large market for new and innovative products. Indian institutes of technology and management have become breeding grounds for aspiring entrepreneurs. The rapid improvement in internet and smartphone usage rates has been a significant catalyst for the growth of startups. With over 700 million internet users, India is the second-largest online market in the world. This digital revolution has enabled startups to reach a vast, diverse customer base with minimal infrastructure.

The Indian government has launched several initiatives to further expand a startup-friendly environment. In 2016, The “Startup India” campaign was launched to build a sturdy ecosystem for nurturing innovation and startups. It offers various benefits, including tax exemptions, simplified regulations, and access to funding. The availability of venture capital, angel investors, and private equity has provided the necessary financial backing for startups to grow and scale. Numerous domestic and international investors are keen to tap into the Indian startup market, further boosting the sector’s growth.

Indian startups are known for their innovative solutions to unique challenges whether financial inclusion through fintech, healthcare accessibility through telemedicine, or education through tech platforms, Indian startups are leveraging technology to solve real-world problems.

Several Indian startups have not just achieved remarkable success, but have also gained global recognition. Companies like Flipkart, Ola, Paytm, and Byju have not only revolutionized their respective sectors but have also set benchmarks for aspiring entrepreneurs worldwide. These success stories are not just local inspirations, but global proof of the potential within the Indian startup ecosystem.

The rapid growth of the Indian startup market

Between 2016 and 2023, India saw the recognition of over 100,000 startups, which contributed to the creation of more than 1.2 million jobs. This translated to an average of 80 startups being recognized per day during that period. Remarkably, these startups exhibited a compounded annual growth rate of 128%. Notably, half of these recognized startups were established in tier 2 and tier 3 cities, reflecting the widespread entrepreneurial activity beyond major urban centres. Recognized startups are present in over 670 districts of India, and each startup generated an average of 11 employment opportunities.

Fig: 1

With 48% of recognized startups having at least one woman director, there is a substantial presence of women entrepreneurs in leadership roles within the startup community. The fact that 49% of recognized startups with at least one woman director are situated in tier 2 and tier 3 cities underscores the growing role of these regions in fostering women’s entrepreneurship. It reflects not only the spread of startup culture beyond metropolitan areas but also the potential for economic empowerment and development in smaller cities and towns. The compounded annual growth rate (CAGR) of 82% for recognized startups with at least one woman director highlights the rapid expansion of women-led startups.

The growth of recognized startups has demonstrated a remarkable upward trend over the years, reflecting a vibrant entrepreneurial environment. From 300 in 2016, the number has skyrocketed to 100,000 by 2023, indicating significant expansion within a relatively brief period. Additionally, the presence of recognized startups with at least one woman director has also surged between 2017 and 2023. Beginning at 1,500 in 2016, the figure has surged to 55,000 by 2023. The data also shows up to 2022 the growth of recognized startups and women entrepreneurs was consistent, but somehow between 2022 to 2023, the overall recognized startups saw a decline of 30.8% (fig: 1 & 2).

Fig: 2

Maharashtra has shown exceptional performance

Maharashtra emerges as the frontrunner with the highest number of recognized startups, boasting 21 thousand startups. This dominance can be attributed to Mumbai, the financial capital of India, which serves as a thriving hub for entrepreneurship and innovation. Karnataka secures the second position with 12.6 thousand recognized startups, primarily driven by Bangalore (Bengaluru), known as the Silicon Valley of India. The state’s robust ecosystem, supportive infrastructure, and access to talent have contributed to its prominence in the startup landscape. Delhi, the national capital territory, follows closely behind Karnataka with 12.5 thousand recognized startups. Its strategic location, coupled with access to government institutions, funding opportunities, and a diverse talent pool, makes it an attractive destination for startups across various sectors.

Fig: 3

Uttar Pradesh emerges as a significant player in the startup ecosystem, securing the fourth position with 10.9 thousand recognized startups. Cities like Noida, Ghaziabad, and Lucknow have witnessed a surge in entrepreneurial activity, driven by supportive policies and initiatives aimed at fostering innovation and economic growth. Gujarat rounds up the top five with 9.2 thousand recognized startups. The state’s entrepreneurial spirit, coupled with initiatives like the Vibrant Gujarat Summit, has fueled the growth of startups across sectors such as manufacturing, technology, and renewable energy (fig: 3).

Leading industries which enhanced the versatility of India’s startup ecosystem

Fig: 4

The data indicates that the IT Services sector experienced remarkable growth in India’s startup landscape from 2016 to 2023. With 13,500 startups recognized during this period, it boasted the highest number of startups among the industries surveyed. Moreover, it demonstrated an impressive compound annual growth rate (CAGR) of 289%, showcasing its rapid evolution and adoption. In terms of employment generation, the IT Services sector played a significant role, contributing 1.52 lakh jobs over the period. This underscores its importance as a key driver of employment opportunities in the Indian economy. Furthermore, the data reveals that nearly half of the IT Services startups originated from tier 2 and tier 3 cities, highlighting the decentralization of entrepreneurial activity beyond major urban centres. This dispersion of startups across different regions promotes inclusive growth and reflects the increasing accessibility of resources and infrastructure for aspiring entrepreneurs outside traditional tech hubs. Overall, the insights suggest that the IT Services sector has emerged as a vital and dynamic component of India’s startup ecosystem, driving innovation, economic growth, and employment opportunities across diverse geographic locations (fig: 4).
Fig: 5

Made with Flourish

In the IT Services sector, Application Development emerges as the leading segment, accounting for 25% of the recognized startups. This indicates a strong focus on creating software solutions tailored to meet specific needs and requirements. Product Development closely follows, representing 24% of the startups, reflecting the emphasis on building innovative digital products to address market demands. Additionally, IT Consulting holds a significant share of 21%, underscoring the importance of providing advisory and consulting services to businesses seeking technological expertise and guidance. In the Healthcare & Lifesciences industry, Health & Wellness stands out as the dominant sector, with 27% of the recognized startups operating in this space. This suggests a growing emphasis on promoting health and well-being through various digital platforms and solutions. Healthcare Services follow closely behind, comprising 19% of the startups, indicating a focus on improving access to and delivery of healthcare services.

Furthermore, Pharmaceutical startups make up 16% of the recognized ventures, indicating innovation in drug development and healthcare solutions. In the Education sector, Education Technology (EdTech) emerges as the leading segment, with a significant share of 34% of recognized startups. This highlights the increasing integration of technology into educational processes and platforms to enhance learning outcomes and accessibility. Skill Development follows closely, representing 27% of the startups, reflecting efforts to address the growing demand for upskilling and reskilling in the workforce. E-learning platforms also make a substantial contribution, comprising 22% of the recognized startups, indicating a shift towards digital learning solutions and remote education delivery methods (fig: 5).

Leading changemaker industries

Fig: 6

Changemaker Industries is defined as the industries with the fastest-growing rate (CAGR) of recognized startups from 2016 to 2023. Between 2016 and 2023, Changemaker Industries demonstrated remarkable growth, particularly in Waste Management and Toys and Games. In Waste Management, the number of recognized startups surged 41-fold between 2020 and 2023, with over 900 startups employing more than 9,500 individuals and 58% of these startups emerging from Tier 2/3 cities. The Toys and Games industry saw an even more dramatic increase, with an 84-fold rise in startups from 2020 to 2022, recognizing over 330 startups and employing more than 3,400 individuals, with 41% based in Tier 2/3 cities (fig: 6).

Impact of COVID-19 on India’s startup revolution

Fig: 7

Amidst the challenging times of the COVID-19 pandemic, the startup ecosystem demonstrated remarkable resilience and innovation. The Department for Promotion of Industry and Internal Trade (DPIIT) recognized over 31K startups, a testament to the unwavering spirit of entrepreneurship. These startups generated over 3.72 lakh jobs, a beacon of hope in a time of economic uncertainty. Notably, 31% of the total recognized startups were launched during the pandemic, a clear indication of the entrepreneurial spirit that thrives even in adversity. More than half of the current unicorns were established during this period, a shining example of the innovation that emerges from challenging times (fig: 7).

Challenges faced by Indian startups

Despite improvements, navigating the regulatory landscape in India is complex and time-consuming. Compliance with various laws and obtaining necessary approvals pose significant challenges for startups.

While urban areas have seen substantial improvements in infrastructure, rural and semi-urban regions still face challenges. Poor infrastructure hinders the growth and scalability of startups, particularly those reliant on physical goods and services.

Attracting and retaining skilled talent is another major challenge for startups. Larger companies often offer better compensation and job security, making it difficult for startups to compete.

Although funding opportunities have increased, not all startups find it easy to secure capital. Early-stage startups, in particular, need help finding investors willing to take risks on unproven business models.

Future Prospects

The future of startups in India is bright, with continuous improvements in technology and increasing government and private sector support. Emerging technologies like artificial intelligence (AI), blockchain, and the Internet of Things are not just buzzwords anymore, these modern tech have the potential to be game-changers that are expected to drive the next wave of innovation in the Indian startup ecosystem.

The startup revolution in India is a testament to the country’s entrepreneurial spirit and potential for innovation. Despite the challenges, the resilience of Indian startups shines through, demonstrating their ability to adapt and thrive. With continued support from all stakeholders, India is well on its way to becoming a global startup hub, fostering economic growth and creating a better future for its citizens.

References

  1. Startup surge: Fueling India’s growth. (n.d.). Drishti IAS. https://www.drishtiias.com/daily-updates/daily-news-editorials/startup-surge-fueling-india-s-growth
  2. Indian Startup Ecosystem. (n.d.). Startup India. https://www.startupindia.gov.in/content/sih/en/international/go-to-market-guide/indian-startup-ecosystem.html
  3. Jain, A. (2024, January 18). From 2014 to 2023: How the startup ecosystem is thriving in India despite all odds? Explained. Mint. https://www.livemint.com/companies/start-ups/from-2014-to-2023-how-the-startup-ecosystem-is-thriving-in-india-explained-11705547737333.html
  4. David, D., Gopalan, S., & Ramachandran, S. (2021). The startup environment and funding activity in India. In Investment in startups and small business financing (pp. 193-232).
  5. Jain, S. (2016). Growth of startup ecosystems in India. International Journal of Applied Research, 2(12), 152-154.
  6. Rani, M. A. (2017). Startup India: Opportunities & challenges “Start up India stand up India”. ACADEMICIA: An International Multidisciplinary Research Journal, 7(1), 104-113.

 


 

About Author:

Pankaj Chowdhury is a former Research Assistant at the International Economic Association. He holds a Master’s degree in Demography & Biostatistics from the International Institute for Population Sciences and a Bachelor’s degree in Statistics from Visva-Bharati University. His primary research interests focus on exploring new dimensions of in computational social science and digital demography.

Disclaimer: The views expressed in this article are those of the author and do not necessarily reflect the views of 360 Analytika.

Acknowledgement: The author extends his gratitude to the Department for Promotion of Industry and Internal Trade (DPIIT), Ministry of Commerce and Industry for providing data support.

This article is posted by Sahil Shekh, Editor-in-Chief at 360 Analytika.

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