Government recognises more than 92,000 entities as startups since launch of Startup India: A brief look at India’s startup infrastructure

By: Yash Gupte

84 startups, including unicorns BYJU'S, Chargebee, Cars24, LEAD, Ola, OYO, Meesho, MPL, LivSpace Innovaccer, Udaan, Unacademy, and Vedantu, have so far laid off 24,256 workers.

According to the Ministry of Commerce and Industry, since the launch of the scheme in 2016, the Department for Promotion of Industry and Internal Trade (DPIIT) has recognised 92, 683 entities as start-ups as on February 28, 2023. Under the Startup India initiative, eligible companies can get recognised as Startups by DPIIT, in order to access a host of tax benefits, easier compliance, IPR fast-tracking & more. On January 16, 2016, the Startup India programme was launched with the goal of creating a robust ecosystem for fostering innovation and entrepreneurs in the nation, which would promote sustainable economic growth and create numerous employment opportunities.

Currently, India has the third largest startup ecosystem in the world after USA and China and according to a report released by the Credit Suisse Research Institute, India is home to six of the world’s top 100 unicorns. BYJU’s, Swiggy, OYO, Dream 11, Razorpay and Ola are India’s six unicorns. According to the ranking, edtech platform BYJU is the 12th highest valued startup in the world and India at $22 billion at the end of December 2022. Swiggy, a platform for foodtech, was valued at $10.7 billion, OYO Rooms at $9 billion, Dream11, an online gaming portal, at $8 billion, payment gateway Razorpay and Ola were both valued at $7.5 billion each.

The startup India scheme was first announced by Prime Minister Narendra Modi in 2015. In order to be recognised as a startup, the company must be headquartered in India and must have the annual turnover of less than Rs 100 crore. In order to ensure smooth registration of startups in the country, an action plan for startup India was unveiled on January 16, 2016. The Action Plan includes 19 actions that cover a variety of topics, including "Simplification and handholding," "Funding support and incentives," and "Industry-academia partnership and incubation." The Action Plan established the framework for government assistance, programs, and incentives intended to develop a thriving startup ecosystem in the nation.

Source: Ministry of Commerce and Industry

Apart from launching an action plan, the government has taken a number of steps to provide a boost to the startup infrastructure in the country. The Credit Guarantee Scheme for Startups (CGSS) was launched by the government to provide credit guarantees for loans made to DPIIT-recognized startups by Scheduled Commercial Banks, Non-Banking Financial Companies (NBFCs), and Venture Debt Funds (VDFs) under Alternative Investment Funds registered with Securities and Exchange Board of India (SEBI). CGSS is aimed at providing credit guarantee up to a specified limit against loans extended by Member Institutions (MIs) to startups recognised by DPIIT. Startups incorporated on or after April 01, 2016 can apply for income tax exemption. The recognized startups that are granted an Inter-Ministerial Board Certificate are exempted from income-tax for a period of 3 consecutive years out of 10 years since incorporation. The Startup India Seed Fund Scheme (SISFS) provides financial assistance to startups for proof of concept, prototype development, product trials, market entry and commercialization. The assistance is provided at an early stage as easy availability of capital is essential for entrepreneurs to execute the idea. Under the SISFS Scheme, Rs 945 crore has been sanctioned for a period of 4 years starting from 2021-22.

Though the government has been taking a number of steps to develop the startup infrastructure in the country, there are some challenges which still need to be addressed. In February 2023, Only 91 agreements totaling $1.32 billion were made in the third-largest startup ecosystem in the world, compared to 308 deals totaling $4.77 billion in the same month last year. Additionally, early-stage agreements have not been as active in 2023 as they were in 2022, with early-stage funding having decreased by half in the first two months of this year. From January to February 2023, 200 agreements totaling $631 million were made by early-stage firms, as opposed to 510 deals totaling $1.32 billion in the same period of 2022. On the other hand, late-stage deals had a decline of 88 percent in value and an 80 percent volume in February 2023. Startups raised $459 million over 11 deals in February 2023, compared to $3.84 billion across 56 deals in the same time in 2022.

Fintech and e-commerce businesses in India are flourishing, but the space startup industry is still an exception. India only accounts for less than 2 percent of the $440 billion global space industry. This is true even though India is a top spacefaring nation with comprehensive capabilities in satellite production, enhanced launch vehicle development, and interplanetary mission deployment. One of the reasons for the lack of independent private participation in space is the absence of a framework to offer transparency and clarity in legislation.

A study conducted by IBM shows that 91 percent of startups in India fail without even celebrating their 5^th anniversary and the most common reason is lack of innovation. 84 startups, including unicorns BYJU'S, Chargebee, Cars24, LEAD, Ola, OYO, Meesho, MPL, LivSpace Innovaccer, Udaan, Unacademy, and Vedantu, have so far laid off 24,256 workers. Edtech has seen the most layoffs, followed by consumer services and ecommerce. The sector with the greatest layoffs has been e-commerce, then consumer services, then e-tech. Together, 46 startups have fired 18,953 workers in the three industries so far. Particularly, edtech has been the subject of intense scrutiny nationwide. In addition to closing five firms in 2022, 19 edtech startups including four of the seven edtech unicorns have laid off more than 9,000 workers. 36 startups have already announced layoffs in the New Year, affecting as many as 5,807 workers.

The country's workforce, particularly the young, who left old, stable enterprises to join startups at outrageous compensation, however, looks to have dried up, and layoffs are expected. Clearly, the startup ecosystem in India isn't doing as well as it did a year ago. As a result of the war between Russia and Ukraine and other macroeconomic factors which has caused inflation and a liquidity crisis, startups' ability to raise finance is currently suffering. The investors are becoming more selective and cautious.