India has come a long way since 2014 in building a culture of entrepreneurship and innovation. On an international level, its achievements are evidenced by the fact that its ranking in WIPO’s Global Innovation Index (GII) improved from 81 in 2015 to 40 in 2022. India is today the world’s third largest startup ecosystem, home to more than 100 unicorns. As of September 2022, these unicorns were valued over $340 billion. In fact, according to Invest India, India’s National Investment Promotion and Facilitation Agency, the years 2021, 2020, and 2019 saw the birth of the maximum number of Indian unicorns – 44, 11, and 7 respectively. The Covid-19 pandemic caused immeasurable socio-economic suffering globally, but it is during this time that the resilient Indian entrepreneur worked tirelessly to not only contribute to the economy but also towards Covid-19 relief efforts. This was only possible because the government trusted and encouraged Indian startups to take up the tall challenges presented by the calamity in record times.
Globally, Israel has often been termed as an ‘island of innovation’. That is laudable yet ironical since, geographically speaking, almost two-thirds of the country comprises of a desert landscape and is water-stressed. Given this, the fact that Israel produces over 90% of its own food requirements and even exports agricultural produce to the world is no short of a miracle. Perhaps the single most important factor that has enabled Israel to accomplish such an awe-inspiring feat is innovation. The country has been a world leader in innovation and entrepreneurship for the past 15 years. It boasts of having more startups per capita than any other country in the world, thus rightfully claiming the title of ‘Silicon Valley of the Middle East’.
Among the several reasons behind Israel’s success in nurturing more than 6,000 startups and producing over 90 unicorns (as of 2022) that are worth $255 billion – almost half the country's GDP – is the role its government has played in enabling and protecting innovation in the country. For any economy to have a thriving startup ecosystem, it is imperative for the state to proactively support young companies through enabling policies, a predictable regulatory regime, and a conducive business environment, free of threat or fear. That is what facilitates true innovation.
The pandemic reinforced the fact that startups are the crucibles of innovation which help address unmet demands of the economy in an effective and cost-efficient manner. For example, startups like the ones in the edtech space, that presently India dominates across the world, needs to be protected as well. Besides this, startups also act as catalysts for growth, helping drive economic recovery especially after a period of slump, both locally and globally. This becomes particularly relevant in times of today where the global economy is witnessing winds of recession. In periods of sluggish economic growth, startups not only generate employment, but also disrupt the economy by bringing in latest technology and cutting-edge innovation. They also open new markets by either creating new ones or transforming the old ones by introducing products/services that change the world. However, for them to perform and help insulate the economy from external recessionary pressures or even drive the economy out of it, they need to be extended a hand of support from the state, in such times all the more. For example several ed-tech startups have brought about access to education to remote parts of the country and managed to reach the last mile.
There is no denying that startups, like any other entity, need to be kept in check for any unlawful activities performed under the garb of nation building. At the end of the day, they are not charitable organizations with social objectives but corporate entities with a motive to remain going concerns and maximise profits. However, it is important to note that for any startup to raise funds in the market, it must pass multiple rounds of rigorous due diligence that VCs and other investors demand. This is in addition to already adhering to the extant laws of the land that relate to their incorporation, taxation, labour legislations, environmental laws, securities laws, contract law, intellectual property laws etc. Although it is only encouraging that the government is continually striving towards improving ease of doing business and making paperwork less onerous for these young companies, unless they get an atmosphere free of targeted harassment by state authorities, their growth is hampered while also discouraging other law-abiding startups to set up base in India.
Another aspect where the government can contribute constructively is in terms of imparting the right skillset and training to certain historically disadvantaged groups such as women, SCs, STs, Persons with Disabilities (PwD) etc. who aspire to start their own enterprises. Providing practical knowledge and initial handholding to help them understand the nuances of business, relevant laws/regulations, requisite licences, and imparting financial literacy can go a long way in enabling the growth and scaling-up of the micro enterprises already being run by, say, women entrepreneurs. Schemes such as Stand-Up India are a step in the right direction but in addition to financial assistance, the operational aspects of setting up a business may also need some focus.
Startups are, by definition, agents of change – they generate social, financial, and economic value for all. A regulation overkill by way of unnecessary coercion by the state not only erodes the value they have created, but also defeats the vision of Make in India that had set out to making India a hub for manufacturing, design, and innovation by facilitating investment and fostering innovation.
Dr Fauzia Khan is a Member of Parliament, Rajya Sabha.
Opinions expressed in this article are those of the author and do not purport to reflect the opinions or views of THE WEEK.