It is the S factor. India just sexed up what was originally a multilateral endeavour aimed at geopolitical and trade hobnobbing. Under India’s presidency this year, the Group of Twenty (G20), which consists of 19 major economies and the European Union (plus global financial organisations like the IMF and the World Bank) has been smartly pivoted into a vehicle for promoting the country as a destination for investment and tourism.
The S factor that is unique at the centre of it all is Startup20. A first-of-its-kind venture in the annals of G20, it was started this year during India’s ongoing presidency, as the country insisted that the existing Business 20 (B20) forum for global businesses was not sufficient to deal with the startup ecosystem as it also catered to large corporations and other trade matters as well.
Startup20, instead, would be the focused base for fostering startups. In fact, a policy communique issued at the end of the Startup20 meeting in Goa spoke about “scouting startups globally, funding them collaboratively, mentoring them contextually, and scaling them internationally…. setting the stage for a vibrant and thriving global startup ecosystem”.
By extension, India hopes to reap the dividends that will accrue from projecting the nation as a global hub for startups.
“Within a few years, we were able to become the world’s third largest ecosystem for startups,” said Amitabh Kant, G20 Sherpa and former CEO of NITI Aayog, recently. “Startups can play a crucial role in the development story of a nation, if not the world.”
For the Indian establishment, startups is a unique success story it would like to project, and capitalise on. But that is not all. There is a very clear objective behind the setting up of Startup20, which, after meetings in Sikkim and Goa, will have its main summit in Gurugram next month.
The objective is simple and precise. To clearly position India as the global go-to hub when it comes to setting up startups, getting the right talent pool of experts and skilled workers, and a bouquet of funders, from venture capitalists to private investors, to pitch to.
But is the world listening?
“India will continue to be one of the top destinations in the world. Maybe even become the startup destination,” said Kris Gopalakrishnan, Infosys co-founder and chairman of the CII National Startup Council. “Because the need for good solutions is there in India, and every industry will require this.”
These companies [if they want] can start up in any part of the world, said Gopalakrishnan, “So we need to make sure that there is a very good reason to remain in India.”
India does have a thriving startup universe that is the envy of the world. Literally out of nowhere, the past decade or so has seen as many as 115 Indian startups achieving unicorn status, that is a valuation of more than one billion dollars (around Rs8,000 crore equivalent). Their combined valuation estimates them to be worth an astonishing Rs28 lakh crore.
Even better, the number of startups in the country has rocketed exponentially―from 415 in 2016 to 86,000 in 2022. In fact, some estimates put the number at close to a lakh.
More than the valuation, the ideas and problem-solving skills these startups spawned have had the world queuing up. The foremost among them are on the fintech side, where uniquely Indian innovations like the Unified Payments Interface (UPI) is now being increasingly adopted around the world as a quick and cheap mode of money transfer and shopping.
“Digital fintech is an example of Indian startups building solutions for a particular issue India faces, that can then be applied to other economies,” said R. Dinesh, president of the Confederation of Indian Industry (CII), the premier national business chamber that has already set up two centres of excellences aimed at nurturing startups in the country.
That could well be a stepping stone to a global future. “India is well positioned to become a global startup hub,” said Ninad Karpe, partner with the venture capital firm 100X.VC, “Given the size and scale of the Indian market, there is a lot of headroom for a lot more startups in India. The overall ecosystem is now more robust than a couple of years ago, with many incubators, venture capital (VC) funds and government support.”
Aditya Malik, a startup mentor with the CII, feels India’s attraction lies in a combination of its talented skill pool that can churn out solutions needed by its vast population. “India’s domestic market offers immense potential for growth and scalability… while the country’s demographic dividend and diversity foster innovation. Additionally, India’s IT services industry is a global market leader, providing a strong foundation for tech-driven startups.”
Yet, for all its successes on the unicorn stage and the whole G20 push, India, as the world’s startup capital, may still be a dream that will have to wait.
“I think creating a conducive market for global startups is down the road,” said Dinesh of CII. “I don’t think we should hurry into that situation. Here we have enough of a large demand from the domestic side for you to actually have startups focusing on India solutions. Then, as it evolves, we can go onto global solutions.”
Practical issues also abound. Post-Covid global reconfigurations may have made India notch up some ‘China plus one’ brownie points and its position in various global ease of doing business indices may have improved drastically in the last few years, but it is still not an automatic go-to favourite.
“Inadequate physical infrastructure, unreliable power supply and limited access to high-speed internet in rural areas are still a problem, and stall c-commerce and tech startups from growing,” said Saumya Kumar, director, I-Venture, Indian School of Business (ISB). “The regulatory environment is bureaucratic and tough to navigate.”
Funding is another problem area. The bigger startups hit headlines bagging big ticket bonanzas, but the environment to meet investors, make pitches, interact and network for is still less than ideal for early stage startups. “India has the potential to become a global go-to point for startups to pitch [but it] still has some [time] to go before that happens. We need to see a lot more global VC and PE funds setting up office in India,” said Karpe of 100X.VC.
Particular issues vex foreigners coming in to set up trade in the country. “Specific challenges for startups that come to India are around issues relating to protecting trademarks, copyrights, and patents,” said Kumar of ISB, “If startups get into legal or compliance issues, it takes them a lot of effort to figure a way out. They waste a lot of energy figuring things out instead of focusing on building their business.”
Taxation is also a vexing issue. “The government needs to reform the taxation system for startups and research to encourage investment in innovation. This can be achieved by offering tax incentives, simplifying tax regulations, and providing clarity on tax policies while avoiding retrospective tax policies. Also, the government should consider providing tax holidays or exemptions on ESOPs (Employee Stock Ownership Plan], reducing capital gains tax on unlisted investments in companies, and streamline tax procedures to reduce compliance burdens,” said Kumar.
While the government has earmarked GIFT City in Ahmedabad almost like a free port for entrepreneurship, experts feel more such hubs, and elsewhere, are required. “GIFT City, a special economic zone, offers numerous benefits to foreign entrepreneurs such as tax breaks, customs duty exemptions, relaxed foreign exchange controls, and single-window clearances. [It’s] an attractive option for foreign businesses. However, it’s crucial to consider other factors like skilled labour availability, cost of living, infrastructure, and political stability when choosing a business location in India.”
So will the G20-fuelled dream get stuck at ‘angel’ stage itself, or will it fly up into the unicorn universe? “It will happen automatically. Other developing markets will definitely come to India,” said Dinesh, “I don’t think we need to do anything different. The thing is, we are building solutions which can be replicated in other parts of the world. [Just] continue to build up startups so that they have global solutions available for us.”