16 January 2025 : Indian Express Editorial Analysis

1. Startup and go

(Source – Indian Express, Section – The Editorial Page – Page No. – 10)

Topic: GS2 – Governance

Context

India’s startup ecosystem has experienced unprecedented growth, evolving from a nascent phase into the world’s third-largest hub for innovation and entrepareneurship.

Analysis of the news:

The Remarkable Growth of India’s Startup Ecosystem

• With over 1,30,000 recognized startups in 2024—compared to approximately 400 in 2015-16—the transformation of India’s startup ecosystem is extraordinary.
• During this period, funding grew 15 times, investors increased nine-fold, and incubators rose seven-fold, showcasing the ecosystem’s vibrancy.
• A key driver has been India’s robust digital public infrastructure, addressing global challenges like Sustainable Development Goals, climate change, financial inclusion, and agricultural productivity.

Opportunities in Emerging Technologies

• India is on the brink of a technological revolution, unlocking immense potential in areas such as AI, ML, big data, electric vehicles (EVs), quantum computing, genomics, robotics, drones, and space exploration.
• Government initiatives like the National Quantum Mission, India AI Mission, and Semiconductor Mission, backed by an allocation of Rs 1 lakh crore for R&D, demonstrate strong state support.
• These initiatives position India as a frontrunner in cutting-edge technology sectors.

Progressive Policies and Sectoral Expansion

• Government reforms have opened up sectors like space, geospatial technology, defence, and drones, inviting startups to innovate in frontier domains.
• Collaboration between policymakers, entrepreneurs, and educational institutions is vital to realize the full potential of these advancements.
• However, challenges persist, particularly for deep tech startups, which struggle to access patient capital.
• The Fund of Funds for Startups (FFS) has catalyzed a significant capital pool, but specialized funds for deep tech are essential to sustain long-term innovation.

The Need for Domestic Capital and Sustainable Growth

• Although Indian startups raised over $12 billion in 2024, 75% of this funding came from international sources. Large domestic institutions like insurance companies, pension funds, and family offices must increase their investments in startups.
• Private equity (PE) and venture capital (VC) have played a transformative role, with funding growing from $19.7 billion in 2015 to $77.07 billion in 2021.
• To ensure sustainability, domestic funds should focus on long-term value creation, profitability, and robust business models.

Balancing Innovation and Accountability

• India’s startup ecosystem thrives on minimal regulatory interference, fostering innovation.
• However, instances of corporate mismanagement in companies like Byju’s and BharatPe highlight the need for self-regulation.
• Startups must prioritize accountability, transparency, and ethical conduct, supported by strong mentorship and professional governance.
• Investors also play a crucial role in ensuring balance between growth and long-term stability.

Academia’s Role in Fostering Innovation

• India’s premier educational institutions, such as IITs, IIMs, and IIITs, are central to the startup ecosystem.
• These institutions produce skilled professionals and foster innovation. However, curricula need to address emerging skill gaps in areas like data science, AI-ML, and product development.
• Collaboration between academia and industry is critical, with internship and apprenticeship programs bridging the talent gap and attracting top talent to startups.

Bridging the Intellectual Property Gap

• Despite producing 24,000 PhD graduates annually, India’s intellectual property (IPR) ecosystem lags behind, as evidenced by a $14.3 billion outflow in IPR royalties compared to $1.5 billion in earnings in 2024.
• To address this, India must create an innovation-friendly ecosystem that rewards and protects intellectual property.
• Startups must lead this charge by driving advancements in science, technology, and IPR development.

Unlocking Regional Potential and Inclusivity

• Nearly 50% of India’s startups now emerge from Tier II and Tier III cities like Indore, Jaipur, and Ahmedabad, reflecting a shift from metro-dominated entrepreneurship.
• With half of India’s urban population living in smaller cities, these regions are emerging as new growth hubs.
• To unlock this potential, infrastructure development, educational opportunities, and increased inclusivity—particularly by enhancing women’s leadership representation—are essential.

Vision for the Future:

• India’s thriving startup ecosystem, supported by progressive policies, innovation culture, and collaborative efforts, is poised to become the world’s leading hub for entrepreneurship.
• Startups will be pivotal in achieving the vision of Viksit Bharat by 2047, driving economic growth, job creation, and global leadership in innovation.
• With sustained efforts, India can set a benchmark for startup ecosystems worldwide.

Challenges

Lack of Entrepreneurial spirit: In leading economies, a higher percentage of students pursue entrepreneurship post-education (16% in the US, 5% in the UK, 4% in China). As per Niti Aayog, Only 2% of graduating students from top Indian HEIs pursue entrepreneurship. If 5% of Indian students chose entrepreneurship, it could result in 5 lakh new entrepreneurs annually, with about 50,000 startups surviving and creating significant job opportunities. Regulatory Hurdles: Startups face significant operational challenges due to complex regulations, such as ongoing debates over ride-sharing companies under the Motor Vehicles Act and compliance issues stemming from the Digital Personal Data Protection Act, of 2024. Talent Retention: Despite the large number of graduates, about 60% of Indian tech professionals are willing to move abroad, which creates competition with multinational corporations and international job markets, which impacts startups’ ability to retain talent. Infrastructure Gaps & Uneven Funding: As per Telecom Regulatory Authority of India Consultation Paper on Digital Inclusion in the Era of Emerging Technologies, Internet penetration in rural areas is only 37%, limiting market potential. Additionally, women-led startups encounter a significant funding disparity, even though urban areas have a 71% internet penetration rate. Scaling Issues: Approximately 90% of startups fail within five years due to difficulties in scaling operations and entering new markets.

Practice Question:  Discuss the factors driving the rapid growth of India’s startup ecosystem and examine the challenges it faces. (150 Words /10 marks)

For more such UPSC related Current Affairs, Check Out: 15 January 2025 : Indian Express Editorial Analysis