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A Comprehensive Study of The Indian Startup Ecosystem
A Comprehensive Study of The Indian Startup Ecosystem
ISSN :2583-0295, Impact Factor: 5.449, Volume 03, No. 02(I), April- June, 2023, pp 19-26
Ashu Chauhan
Deepty Bansal**
ABSTRACT
Startups are the engine of economic growth and development. Startups generate innovative
employment opportunities, especially for the young generation of a country. The present study analyses
the overall scenario of startups in the Indian economy. The study also focuses on the growth of startups
working in different sectors of the economy. The study also highlights the employment generation by
startups in India. The various sources of funding for startups are also discussed in detail. The study is
based on the secondary data sources. The result of the study revealed that Maharashtra is a leading
state in terms of startup development. The study revealed that more startups are working in the
enterprise tech sector followed by e-commerce, fintech, consumer services, and health-tech sectors. The
study found that approximately 4.7 lakh jobs are created by startups. It is also found that bootstrapping is
the main source of the startup funding in the initial stages of startup development. Therefore, startups are
positively contributing to the growth of Indian economy by innovations and employment generation,
increase in demand, decrease in imports, regional development, and increase in GDP etc.
___________________________________________________________________________________
Research Scholar, Department of Economics, Punjabi University, Patiala, Punjab, India.
**
Assistant Professor, Department of Economics, University College, Ghanaur, Patiala, Punjab, India.
20 International Journal of Innovations & Research Analysis (IJIRA)- April- June, 2023
• Its turnover for any of the financial years since incorporation should not exceed 100 crores.
• It should be working towards innovation, development, or improvement of the product or
process, or services.
• The entity should not be formed by splitting up or reconstructing a business already in
existence.
In the last few years, large number of startups established in India in almost every sector of the
economy. The main startups which are known to the common man in the country are Flipkart, Snap deal,
Zoho, Bounce, Oyo, Make my trip, Ninja Cart, Way-Cool, etc. Startups have positive effects on the
nation’s economy. These startups create more jobs, income, and indigenous technology. The number of
startups is increasing significantly. Studies found that approximately 41,000 startups were recognized by
the government of India till the year 2020 and 4.7 lakh people were employed directly or indirectly by
these startups (Government of India, 2020). Hence, startups are becoming the engine of growth by
providing jobs to the masses.
In India, the Department for Promotion of Industry and Internal Trade (DPIIT) registers or
recognizes startups. In the year 2023, 96,327 startups are recognized by DPIIT in India. But the growth of
the startups is not uniform throughout the country rather it is regionally biased. The concentration of the
startups is mainly in tier 1 or tier 2 cities of the country. It is because of the availability of better
educational facilities, skill development, good academic institutes, and more awareness among the
people in these cities.
The Indian startup ecosystem is also catching up with the world. India has the third largest
startup ecosystem in the world after US and China. Indian startup ecosystem ranked 20th in the world in
the year 2021. These rankings are secured based on the quantity, quality, and business scores
comprising of the number of employees per startup, presence of unicorns, exit procedures, and pantheon
companies, global startup events, presence of strategic branches and research and development
centers, the overall startup ecosystem. The global ranking of the Indian economy is further improved to
19th in the year 2022 (Global Startup ecosystem index 2022). Bangalore city of India was ranked 10th
among global cities having a good startup ecosystem in the year 2021 (NEDO, 2021).
Review of Literature
Startups are becoming engines of growth and employment around the world. So it becomes
important to study the growth of startups in the Indian economy. Some primary and secondary data-
based studies have highlighted that the startup ecosystems are growing in advanced nations at a high
rate due to business mind-orientation and government support. Studies found that these startups created
employment, income, and added value in these economies. Different secondary data reports published at
national and international levels revealed that the Indian startup ecosystem is flourishing very rapidly
after the launch of the Startup India Scheme in the year 2016.
Grant Thornton Report (2016) highlighted that 10,000 startups were running in the Indian
economy in 2016. The total number of non-technological startups was more as compared to
technological startups and the report found that 800 new startups were added annually to the Indian
economy. The government of India took policy measures like Make in India, Standup India, and Digital
India to promote startups. To provide the financial assistance, the government of India started Mudra
Scheme. KPMG (2018) highlighted the landscape of tech startups in the Indian economy. The study
found that the country had around 5200 tech startups with a growth rate of 7% each year in 2018. Around
one lakh jobs were also created by the startups. The results revealed that tech startups were running in
e-commerce, health tech, fintech, travel tech, logistics, consumer services, enterprise tech, and deep
tech sectors. The results further revealed that Bangalore city attracted more funding compared to other
advanced cities of India.
The Government of India (2020) highlighted the milestone achievement of the Startup India
Scheme in the Indian economy till 2020. The study showed that India's startup ecosystem was the most
vibrant and fastest-growing among the world startup ecosystems. The results revealed that 41,000
startups were recognized by DPIIT in the country till 2020. 45% of the startup founders were from the tier
2 and tier 3 cities of the country. Startups created 4.7 lakh jobs in the Indian economy. The government
invested 4500 crores into the startups through the Startup India Scheme. NEDO (2021) has shown the
startup landscape in the Indian economy between 2014 and 2020. The results revealed that 38,815
startups were working in the Indian economy till 2020. Each sector grew substantially in this period.
Enterprise tech startup was mainly a flourishing sector in the Indian economy. Grant Thornton (2022)
Ashu Chauhan & Deepty Bansal: A Comprehensive Study of the Indian Startup Ecosystem 21
also highlighted the startup ecosystem expansion in India. The study revealed that 480 startups were
recognized in the economy in the year 2010 which increased to 41,061 in 2020. There were seven
incubation centers operational in 2010 which raised to 256 in 2021. The study also found that startup
mortality rate is also declined to 0.04% in the year 2021.
Global Startup Ecosystem Index (2022) highlighted the startup ecosystem of 1000 cities and
100 countries based on the quantity, quality, and business environment comprising the number of
startups, incubation centers, business environment, etc. of these economies. According to the report
USA, and UK had the top startup ecosystem in the world. India has secured the 19th rank in the global
startup ecosystem. Indian cities Bangalore, New Delhi, and Mumbai secured the 8 th, 13th, and 17th ranks
in the world in terms of the startup ecosystem.
After reviewing the literature on the Indian startup ecosystem it is found that startups are
evolving in the Indian economy. The government is working as a facilitator to young innovative minds.
The startup ecosystem is in expansion mode in metropolitan cities in the country. The international
ranking of the Indian startup ecosystem is also improving.
Research Methodology
The study is based on secondary data sources. To get an overview of the Indian startup
ecosystem, various research papers, reports, government websites, the startup India portal, and
newspaper articles are explored in detail. The main objectives of the study are the following:
• To know the status of startups in the Indian economy in 2023.
• To examine the number of startups working in different sectors.
• To know the employment generation by the startups in India.
• To highlight the various sources of finance for the growth of the startups.
• To study the impact of startups on the Indian economy.
Status of the Startups in the Indian Economy in 2023
The number of startups is increasing rapidly in India. These startups are mostly non-
technological in nature (www.startupindia.gov.in). Startups are mainly working in agriculture, animal
husbandry, drinking water, education & skill development, energy, enterprise systems, environment,
fintech, food processing, health & wellness, and industry 4.0. Thirty-one states and union territories out of
the thirty-six have a startup policy to uplift the status of the startups in the economy. Whereas 27 states
out of these 28 states have launched the startup policy after the launch of the Startup India Scheme.
Almost all the states have DPIIT-recognized startups. Table 1 shows the number of startups working in
different states, the share of female founders, and key sectors of startup development.
Table 1: Status of the Startups in Different States of India
S. No. States Total Number of Share of Female Key Sectors
Startups Founders
1 Maharashtra 17533 8565 Food Processing
(20.68) (48.8)
2 Karnataka 10904 4973 Product Development
(12.86) (45.6)
3 Uttar Pradesh 8863 4360 Construction and Engineering
(10.45) (49.19)
4 Gujarat 7116 3081 Business Support Services
(8.4) (43.2)
5 Tamil Nadu 5765 2832 Application Development
(6.8) (49.1)
6 Haryana 5052 2410 Food Processing
(5.9) (47.7)
7 Telangana 5030 2479 Application Development
(5.9) (49.28)
8 Kerala 4165 1606 Application Development
(4.9) (38.55)
9 Rajasthan 3186 1452 Food Processing
(3.7) (45.57)
22 International Journal of Innovations & Research Analysis (IJIRA)- April- June, 2023
more in the fintech sector, which reveals that the fintech sector has more growth prospects in terms of
startup development in future. Consumer service sector and health tech sectors have 4270 and 3882
total startups respectively.
Employment Generation by the Startups
Startups are generating employment in the Indian economy. Startups have generated around
4.7 lakh employment directly or indirectly between 2015 and 2020 in the Indian economy (Government of
India, 2020). Studies show that these startups are hiring fresher candidates for the jobs. So, startup
companies are a good source of employment generation for the young generation. Table 4 represents
the employment generation by the startups during the time period 2015-2020 in the Indian economy.
Table 4: Employment Generation by the Startups in the time Period 2015-2020
Year Number of Total Jobs Average CAGR
Recognized Startups Employment per (Calculated)
Startup
2016 504 5040 10
2017 5425 49,000 9.03
2018 8947 96,000 10.7
27.53%
2019 11,701 1,50,000 12.8
2020 14,740 1,70,000 11.5
Total 41,317 470,040 10.8
Source: Government of India (2020)
Table 4 shows that job opportunities created by the startups are increasing year on year
positively. It is also found that on an average a startup is employing 11 persons. It implies that startups
can solve the problem of mass unemployment in the country. Study finds that compound annual growth
of employment generation is 27.53%.
Financial Sources for the Growth of Startups
Funds are pivotal for the growth of any business. A startup is a highly risky venture. Because of
high-risk associated in the business raising fund is very difficult. The government of India has infused
4509 crore investment in 384 startups through the Startup India fund Scheme (Government of India,
2020). The main sectors in which startups got government funding are food and beverages, consumer
services, artificial and intelligence, edtech, IT&ITES, healthcare & life sciences, finance technology, e-
commerce, and logistics.
There are various funding sources available for the growth of the startups. But funding
availability vary from one growth stage to another growth stage of the startup establishment. Table 5
shows various sources of finance according to the different growth stages of the startup establishments.
Table 5 Sources of Funds According to the Stages of the Startup Business
Stages of the Startup Sources of Funds
Ideation (Pre-seed stage) • Bootstrapping
When idea is on initial stage. • Friends & Family
• Business Plan/ Pitching Events
Validation (Seed stage) • Incubators
When the prototype of the product is ready. • Government Loan Schemes
• Angel Investors
• Crowd-Funding
Early Traction • Venture Capital Funds
When the product is launched into the market. • Bank/Non-Banking Finances
• Venture Debt Funds
Scaling • Series A, B,C, D & E Funding
Startup experiences a fast rate of market • Venture Capital Funds
growth & increasing revenues. • Private Equity Funds/ Investors
Exit Options • Mergers & Acquisitions
• Initial Public Offerings
• Selling shares
• Buy Backs
Source: Self-Compiled
Ashu Chauhan & Deepty Bansal: A Comprehensive Study of the Indian Startup Ecosystem 25
In the Table 5 various sources of funds are shown according to the stage of the startup growth.
It becomes evident from the table that at the initial stage of the idea development, self-funds play
important role in the idea development. Whereas investors, banking institutions, and venture capitalists
invest in the later stages of the startup development. Table 6 shows the annual funds raised by the
startups from the 2014 to 2020.
Table 6: Year-wise Funding raised by the Startups (2014-2020)
Year Fund Raised by Startups (in $ bn) Number of Deals
2014 5.3 379
2015 9.3 987
2016 5.7 1057
2017 13.2 1000
2018 11.9 833
2019 12.8 812
2020 11.5 924
CAGR (%) 11.70 13.58
Source: NEDO (2021)
Table 6 shows that the total funds raised by the startups were $5.3 bn and funding deals were
379 in 2014. The fund raised increased to $11.5 bn and total deals increased to 924 in 2020. The funds
raised by the startups grew with the rate of 11.70% in the period of 7 years from 2014-2020. Whereas
number of deals increased by 13.58% during this time period.
Impact of Startups on the Indian Economy
Indian economy faces a lot of challenges in the field of technology, medicine, education,
science, and different infrastructural and institutional areas. Startups are mainly technology-oriented
companies that have the potential to explore the untapped sectors in the country. Therefore, startups can
play an important role in the development of Indian economy. Following are some of the positive impacts
of startups contributing to the growth of the Indian economy.
• Startups introduce new technologies in the country and boost production in the economy.
• Unemployment is a major problem of India. India is a country where 100 million jobs are
required every year which can be generated by startups. So startups can be the engines of
employment generation for the Indian economy.
• Technological progress is very important to improve productivity in any economy. Startups are
more agile and able to invest more in new technologies and innovations compared to old firms.
• Startups are able to produce substitutes for the imported goods, therefore help in solving the
problem of adverse balance of payments.
• In India, a large population resides in the villages and use obsolete means of production.
Startups invent new means of production, new products and services for backward regions also
in order to cater the demand of this section, which remove the regional disparities.
• Startups add value to the economy, therefore increases the GDP. According to a study, startups
have the potential to contribute 4-5 % to India’s GDP (Sneha et al., 2023).
• Startups boost the production of other industries due to their backward and forward linkages.
• Startups attract foreign investment also, therefore flow of foreign currency increases in the
economy.
• Startup companies demand technicians and managerial persons. To cope up this demand
similar skills are developed among the youth to make them employable.
Findings and Conclusion
• Maharashtra, Karnataka, Uttar-Pradesh, Gujarat, and Tamil Nadu are the top five states in
terms of the startup development in India.
• The startups are mainly originating in the sectors namely food processing, construction,
engineering, and application development in the country.
• The share of the female startup founders is highest at about 50% in West Bengal, Punjab, and
Meghalaya states of the country.
26 International Journal of Innovations & Research Analysis (IJIRA)- April- June, 2023
• Enterprise tech, e-commerce, fintech, consumer services and health tech are the top five
sectors in which more startups are flourishing.
• The study found that after the launch of the Startup India Scheme approximately 4.7 lakh
employment is generated by startups in the Indian economy.
• On an average a startup is providing employment to 11 people, it means startups are solving the
problem of unemployment.
• Funding raised by the startups is increasing year on year, but the rate of fund raising is slow.
• Startups are benefiting the Indian economy in many ways like creating innovations and
employment, decreasing imports and regional development, increase in GDP, development of
related goods & services, increase in the level of education and flow of the currency. Therefore,
startups are very important for the economic development of the Indian economy.
The study concludes that startups are contributing to the development of Indian economy and
are solving the problem of unemployment. Government should give more incentives to promote startups
in the economy.
References
1. Government of India (2020). Evolution of Startup India-Capturing the 5-year story. Ministry of
Commerce and Industry, Department for promotion of Industry and Internal Trade.
2. Global Startup ecosystem index (2022). Startup Blink. https://lp.startupblink.com retrieved on
25-12-2022.
3. Grant Thornton Report (2016). Startups India -An overview. Assocham, New Delhi.
4. Grant Thornton (2022). The Indian entrepreneurial odyssey democratisation of startup
ecosystem in Bharat. https://www.grantthornton.in/globalassets/-member-firm/india/assets/pdfs
/indian-startup-ecosystem-thought-leadership-feb-2022.pdf. retrieved on 20-12-2022.
5. KPMG (2018). Startup ecosystem in India-Growing or matured? https://kpmg.com/in/en/home
/insights/2019/01/startup-ladscape-ecosystem-growing-mature.html. retrieved on 20-10-2019.
6. NEDO (2021). The State of Indian Startup ecosystem report 2021.
Inc42plus.https://inc42.com/reports/the-state-of-Indian-startup-ecosystem-report-2021 retrieved
on 23-4-2022.
7. Sneha C.J., Vignesh B., & Krithika J. (2023). Impact of Startups in Indian GDP in 2022. EPRA
International Journal of Multidisciplinary Research, 9(1), 132-136.