The Indian Startup Story

The Indian Startup Story

Abstract

The history of the Indian Startup ecosystem is not limited to 21^st century only. It began more than 4 decades ago through the 80s, although in small numbers but companies such as TCS, Infosys and Wipro have left a firm impact on the global economic map. The ecosystem mostly originated with the software services startups serving Indian software needs and later exporting startup services. The English speaking young workforce provided cost effective technology services to clients across the globe. The second generation of this ecosystem short up the global markets during the dotcom bubble. Companies such as Airtel witness $15 Billion in revenue and 350 Million customers round the globe. Banks such as ICICI and HDFC belong to this generation which rank at No.2 and No.3 after the government owned State Bank of India. Cut to post 2010, a drastic increase was seen in the SAAS (software as a service) sector due to presence of Venture Capitalists, Private Equity firms and Incubators. Startups such as OLA cabs and OYO Hotels have put the grassroot level business to unimaginable heights. The trend of reverse brain drain from Indian Institutes such as the IIT’s IIM’s has helped India achieving the 2^nd Biggest Startup Ecosystem in the world just behind China.

Problems with traditional Start-up ecosystems?

Before the era of economic liberalization, the government would have a complete control of what a company could produce, how much it could produce. It needed to so many regulations for even getting a telephone connection that Infosys waited for 1 year to get a landline connection and another 3 years for a licence to import computer. Pre-1991 policies were inward looking and geared towards the attainment of self-reliance. During this era, entrepreneurship was subdued, capital was limited and India had very few success stories. As well, society was risk averse and the individual looked primarily for employment stability. As Dhirubhai Ambani said, the art of managing government relationships was most critical to business success. Yet the problems that continued with the traditional startup ecosystem was the lack of availability of funding, India’s continued exposure to Terrorism, political corruption, lack of inclusive bureaucracy that only focuses on urban rich, poor electricity and land laws, very poor mechanism for Starting a business. Until 2018 also in the capital city New Delhi it needed 26 licenses to start a restaurant and for 1 out of the 26 licenses you need to show 45 documents to the Delhi Police.

Need for Startup India Program?

Enabling A Conducive Ecosystem Beyond ‘Jugaad’.

Shifting the focus from the traditional styled trading business there was a need to move towards innovative business. It emphasised on self-compliance, which made the team working at the Startup India Hub a key stakeholder in the ecosystem to work in a hub-and-spoke model and collaborate with various enablers. The Atal Innovation Mission was launched with the budget of $483 Million in funding.

Key points for the program

· Rs 10,000 funding pool.

· Reduction in patent registration fees

· Improved Bankruptcy Code, to ensure a 90-day exit window.

· Freedom from inspections for the first 3 years of operation.

· Freedom from Capital Gain Tax for first 3 years of operation.

· Freedom from tax for the first 3 years of operation.

· Self-certification compliance.

·New schemes to provide IPR protection to startup firms.

·Built Startup Oasis as Rajasthan Incubation Centre.

Cutting Red Tapism and Government regulations.

Some of the government regulations and public policy changes to make the startup ecosystem more friendly such as were passed to achieve the startup meritocracy.

 ·  Personal Data Protection Bill

 · Ecommerce Policy

 · E-Pharma policy

 · Electric Vehicles Policy, FAME II Extension

 ·  National Electronics Policy

 ·  Draft PSS Amendment Bill

Promote Ease of Doing Business

·Royalty Tax has been reduced to 10 % from 35%.

·Mudra Yojna has been started to provide easy loans for startups

·E-biz Portal: - It integrates 14 regulatory permissions and licenses at one source to enable faster clearances and improve the ease of doing business in India.

The Startup India Scenario now?

It is to be noted that every year more than 800 technology startups are being set up in India. By 2020, it is estimated that around 11,500 tech-startups are going to be established with employment potential of around 250,000 technical people (NASSCOM, 2015). It is admirable to note that India is amongst the top five countries in the world in terms of startups with 10,000+ led by US with 83,000+ comprising 43% tech-based firms with 9% managed by women entrepreneurs. The number of incubators also has crossed 100 in 2014-15 to give boost to the startup saga (Grant Thornton, 2015). Sector wise, the distribution of Indian businesses is:

Along with government initiatives, there is a definite movement in startup arena in India due to penetration of IT and internet. Many startups are coming up in service sector including education, legal, retail, insurance and health. With customers becoming aware of the benefits and convenience, the popularity and viability of startups is no more a difficult proposition for an entrepreneur. A number of venture capitalists and angel investors are aggressive and gung-ho on Indian startups as they see lot of potential with few expected to become unicorns (high valued companies) bringing in good returns.  On the contrary, there are examples of few startups that failed and eventually closed their businesses due to various issues and challenges. 

India being a large country with over 130Cr population, boasts of high demographic dividends due to large number of young people. According to the latest UN report India with 356 million 10-24 year-olds have the largest concentration of youth population who are going to be the driving force behind innovation and creation with commensurate demand and consumption of goods and services (Mittal, 2014). India has a unique set of problems due to multicultural and multilingual regions that need innovations to find solutions to health, education, infrastructure, sanitation and for population at the ‘bottom-of-the-pyramid’ space. Each problem provides a unique opportunity for startups to create a business around it. India's tele-density reached 76.55 percent with a subscriber base of 95.76Cr bringing in convenience and reach to consumer segments including Tier-2 and 3 towns (TRAI,2017). This increased mobile penetration has given a fillip to Indian economy with E-commerce garnering increased share. Further, GoI’s digital push is going to improve connectivity and data to higher levels bringing in more software applications to find solutions for day-to-day issues. The reduction in data charges will also help start-ups to tap into new markets and even disrupt traditional businesses.

How can you register a Startup?

Government of India has started a start-up scheme. This scheme allows new entrepreneurs to register their business at online platform.

1) Get your business registered as private limited company, limited liability partnership form or partnership firm. Private Limited company and LLP to be incorporated at mca (ministry of corporate affairs) portal. Any company or partnership registered in last 10 years is also eligible for registration for start-up.

2) Register at start-up portal. It is very convent process. Just fill-up the form and attached following documents.

a) Registration Certificate

b) Recommendation of incubator

c) Particulars of innovative business or services.

3) Get recognised at DPIIT through start-up profile login, fill-up the desired information and attached registration certificate. 

Problems with Indian Startup Ecosystem?

1) Building and scaling an Indian Startup 

The challenges faced by Indian startups begin with essentials such as hiring and managing a team, dealing with customers, and developing a marketing strategy. In particular, many Indian founders have a technical background and lack business knowledge. Availability of finance is critical for the startups and is always a problem to get sufficient amounts. A number of finance options ranging from family members, friends, loans, grants, angel funding, venture capitalists, crowd funding etc are available now days.

2) Diversity and the Digital Divide

There is an information divide between the ones who provide solution and the ones who are supposed to use them. This is particularly difficult in the Indian context: India is a highly diverse country with a plethora of cultures, languages, ethnicities and religions. Because Indian customers are equally diverse, the startups’ understanding of them is often limited to certain regions, which they know well and where they know local people to work with.

3) Low Willingness to Pay

It is hard for startups to generate willingness to pay for their products and services. Despite increasing incomes, the Indian customer base continues to be price-sensitive and has little willingness to pay for products and services. Often customers expect discounts, or buy cheaper versions from China. Therefore, startups face the challenge of building affordable solutions, which is sometimes done at the expense of quality.

4) Hiring qualified team members

• For many job-seekers, joining a startup as an employee is not an attractive career option, due to the inherent risk that the startup might fail. Instead, the majority prefer to work for large corporations, which promise more stable jobs. In addition, startups can rarely compete with the reputation and compensation structures which large companies can offer.

• A second reason is that many job applicants are not sufficiently skilled. Startups see a gap between the knowledge taught to students in colleges and the knowledge needed for the jobs, especially in sectors in which technologies change at a fast pace.

• A third factor is that a significant number of highly qualified specialists move abroad for jobs. At the same time, and in contrast to many other startup hubs globally, Indian startups are yet to attract international talent. Bureaucracy and visa requirements make it difficult to hire employees from outside India and expatriates are more attracted to places like Singapore, where the living standard is higher.

5) Complex Regulatory Environment

In Ease of doing Business India has come to Rank 77th in 2019 from Rank 140th in 2014 but in ease of starting business the country is on Rank 137th in 190 countries. Startups in India often feel encumbered by bureaucratic processes, which appear to lack underlying standards. They have insufficient possibilities to find information, and there is little planning security about how long processes can take. The tax policy known as Goods and Service Tax, the startups are required to play taxes on time, even if they do not generate any revenue. If payments from customer are delayed they risk huge Penalty Payments.

The angel tax which was introduced in 2012 has been red flagged as a great threat to Startup India program.

6) Exemption certificate under Income tax act.

Only 319 startups which means less than 1% start-ups could secure tax exemption. This is really big indicator of failure of Govt tax incentive scheme.  It shows that most of the start-ups could not satisfy the terms and conditions of getting tax exemption. Causes of failure of tax incentive scheme need to be investigated for guidance of new entrepreneurs.

7) Halted release of angel funds

Out of 41 thousand plus start-ups funds were availed to only 384 start-ups. (Less than 1%) could get fund. It shows very poor success rate. Govt should hire a group of professionals to analyse the root cause of failure of 99% entrepreneurs. So that appropriate guidance may be given to entrepreneurs along with protection of investors. 

MSME vs Startups – Priority of The Indian Government

The difference between a startup and MSME is SME’s are small business which are easy to established and are permanent in nature. They continue to be small for maybe even a generation whereas startups may not necessarily be small. But in Indian context MSME’s are the 30% contributor to the Indian economy and 50% to exports and Job market. Practically not every Indian can do a startup as there is no in-hand salary till they create and deliver products to their new customer and only a chunk, 1 in 1000’s goes on and become large multinational corporations like OLA, OYO, Zomato, Paytm.

The MSME sector is intertwined by the rural economy of the country as more than 50% MSME operate in rural area whereas startup which may turn successful are fewer in number than the MSME. 

So does this mean Indian government should not support Startups?

The answer is no. Government should keep their base priority to the MSME sector and focus upon driving innovations which will turn them from a MSME to a startup. The revolutionised SME sector will be instrumental in providing stability to the Make in India goal. According to report by Bajaj Fiserv nowadays, MNCs are buying semi-finished, and auxiliary products from small enterprises, for example, buying of clutches and brakes by automobile companies.

Take a look at the honest statistics below about how many startup businesses fail, this information will give you an idea of what percentage of startups are successful:

• 9 out of 10 startups don’t make it.

• 20% of startups fall apart after a year.

• 30% of startups close within two years.

• 50% of startups shut their doors within five years.

• 70% of startups dissolve within 10 years.

The primary reason for these numbers is a lack of ability to offer a product for a target market. Although in the last five years there has been a CAGR of 40% in the Indian startup ecosystem but Only 40% of the existing statups are profitable and have generated 4.9 lakh jobs in total which need to be doubled to achieve the goals of country like India.

In the pandemic hit India where the GDP crashed to -23.9 % in 1st quarter of 2020 they MSME sector continued to give 22% CAGR of 22% in last 4 years.

Way Forward

The Indian startup ecosystem has come a long way but we need to improve significantly in order to give competitions to our US and Chinese counterparts. We lack in hard infrastructure and mobile internet penetration when we compare us with China. We are now what china was in 1998. We need to improve our logistics and infrastructure in order to compete with them.

About 58 percent of the Indian population is dependent on agriculture and core technology is lagging in that industry. Education is the biggest deterrent in this race. When it comes to agriculture, food wastage is 30 percent of produce which can be avoided through technology. Unless rural India is bought up to the mark we don’t stand a chance to beat the superpowers.

Leapfrogging – Indian entrepreneurs must focus on the problems which concern India and solve it. It will help us grow better and the formula for this is Go Local and Build Local. Instead of importing technologies we must focus on building our own technologies to solve our problems.

We must achieve high operational efficiency by owning a culture of discipline and good work-life balance the way South Koreans have.

Check whether your planets support your startup skill?

Traditionally Indian Businessmen have unwavering trust in astrology. Sometimes few persons want to test the alignment of their starts with their future plan. If you too have trust in Astrology and want to test your alignment with stars then just check the position of following houses and their lords in your horoscope.

1st House-Representing your personality and decision-making capacity.

2nd House-House of holding wealth since money is an important factor of business.

3rd House-House of self-confidence and risk-taking capacity.

5th House–House of mind, skill, Business acumen.

7th House-This is main business house. House of Business partners, Associations and legalities.

10th House-House of career.

11th House-House of Financial Gains

Strength of Planets - Apart from above houses please check the placements of Saturn, mercury and Rahu along with lagna lord in your horoscope.  If these planets are favourably places with lords of above-mentioned houses, then it’s good for future of your business.

Saturn effect debts Rahu effects your street smartness and mercury effects decision making capacity and intelligence. Further please check their position in D-9 and D-10 chart too. 

If they are placements in 7th, 10th or 11th house then gives scope for bright future. Any exchange of house between lord of 2nd and 11th house also gives excellent Yoga. 

If above tests are ok, then don’t delay. Get your business registered for growth of yourself and nation. 

Friends it is seen that generally first-generation entrepreneurs are visionary and hard working. Their dedication for their dream is at different level. In a way they are visionary and missionary of their dreams.  They never rely on shortcut. So let us give a name to your dream.

All the best 

Thanks for reading.