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India’s (COVID-proof) Startup Nation

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While India and the world struggled to contain COVID-19 through 2020-21, there is always a silver lining to every shadow and in India’s case, it was our startup ecosystem and the markets, both of which did remarkably well.

India’s (COVID-proof) Startup Nation
A virus 1/400th the breadth of a human hair brought a 13 billion-trillion planet to a standstill. Yet India’s Startup Nation conquered all and came out tops. While India and the world struggled to contain COVID-19 through 2020-21, there is always a silver lining to every shadow and in India’s case, it was our startup ecosystem and the markets, both of which did remarkably well. Foreign Direct Investment (FDI) went up by 13 percent in 2020 despite fund flows slowdown in the US, UK, and Russia.
United Nations Conference on Trade and Development (UNCTAD) in its investment trends monitor observed that global FDI collapsed in 2020 by 42 percent to an estimated $859 billion from $1.5 trillion in 2019 and India and China were the only two countries that bucked this trend. Even the US saw a 49 percent drop in FDI, falling to an estimated $134 billion which was indeed astonishing.
Inc 42’s well-regarded Annual study of startups estimates that Indian startups are poised to raise $13.7 billion across 1044 through 2021. This will be its highest ever since 2017 when the startup industry broke the $100 million and above the ceiling of mega funding rounds. The average ticket size has hovered between $17-20 million in the last couple of years and the $100 million + deals dropped from 33 in 2019 to 28 in 2020. Also, the Inc42 reports shows a deal stage wise breakdown and Bangalore has got the maximum funding in seed, bridge and growth-stage funding, emerging streets ahead of its nearest rival Delhi-NCR. So, any talk of Bangalore losing its numero-uno position is a product of some What’s App University fake news!
Neelkanth Mishra of Credit Suisse made a surprising revelation that as against 336 listed companies with a market capitalisation of over a billion dollars, now there are over 100 unicorns in India with a combined market cap of $240 billion, which sit atop an 80,000-startup ecosystem in India! Further, startups account for a reasonably high 6-7 percent of new firms in India, and the ratio has risen over the past decade, with new start-ups incrementally 10 percent of the new firms created. India’s e-commerce industry, despite the pandemic, is expected to reach Rs 7 trillion by 2023!
India’s startups enjoy a unique advantage which perhaps no other country on the planet has, namely access to a non-advertising driven, internal consumption-based, public digital infrastructure, which is available for public and private sectors to leverage. Thus, issues such as identity, authentication, payments, taxation which in more advanced countries are settled in the private sector, but in India are all not just available mostly free via Government but are also in large part through open-source code but are being used by various startups to create value. As India moves rapidly towards a cashless, paperless and presence-less economy many startups are riding the wave on them.
In fact, the JAM (JanDhan, Aadhaar, Mobile) trinity, led in large part by Nandan Nilekani and many unseen unsung private volunteers, has led to India becoming the most sophisticated FinTech ecosystem in the world, along with perhaps one of the best welfare distribution systems namely Direct Benefit Transfer (DBT), which has enabled myriad possibilities across the combination of identity, authentication and payments, in both the Government and private sectors.
During a recent testimony before the US Senate Banking Committee, this was confirmed by US Senator Steve Daines and Professor Darrel Duffie. Stanford University that brings out the stark contrasts between real-time payments among the countries, with India at $25.5 billion versus China at $15.7 billion versus US at $1.2 billion! This too is a silent but revolutionary transformation happening in India. In fact, Professor Duffie while testifying on a “digital dollar’ goes on to point to India’s Aadhaar “as one possible approach, the designers of a digital dollar could consider including design features that would allow consumers, perhaps at their option, to access the payment system with standardised biometric identities”.
In addition to the 30+ unicorns/ soonicorns (soon to be unicorns) created amidst the pandemic, what is even more remarkable is the public spiritedness of some of them to engage with governments to help solve tough problems.
For example, DailyHunt, India’s foremost rival to Facebook in at least one dimension of content aggregation, partnered with Arogya Setu to speed test its app across multiple versions of Android across multiple devices to ensure forward and backward compatibility of the app. It also partnered with several district administrations and local departments, to get timely hyper local information around coronavirus and kept its users informed and updated in a language of their choice and launched #IamaBlueWarrior Campaign across Josh & Instagram partnering with 5000+ creators to create Covid awareness videos. This apart they launched several fund-raising and COVID awareness campaigns across their app’s ecosystem.
Likewise, Udaan, India’s foremost B2B commerce startup, released an app to enable citizens to find medicines, medical equipment etc. without having to struggle too much for it. It saw thousands of searches and visitors during the pandemic. Likewise, it offered its sophisticated supply chain to the Government of Karnataka, and DRDO to transport oxygen and other supplies.
India’s start-up ecosystem needs a few things to be sorted out quickly for them to thrive even more.
First, ease and predictability on not just starting up but also on closing down. Currently, it is quite a laborious chore which forces startups to head outbound and setup a base elsewhere. The challenge comes for there are many “other kinds” of startups which spring up overnight for laundering ill-gotten funds and then disappear without a trace and as always regulation focuses on the lowest common denominator.
Second, both the Union and the State Government need to do a "carve-out” with easier pre-qualification criteria to enable startups to participate in Government tenders. Today the prequalification criteria themselves are so onerous that they get knocked out even before the game begins. Startups have innovative solutions in several sectors including Agritech, financial services, procurement solutions, asset mapping and sharing, etc—not to mention scalability across sectors at an affordable cost.
Likewise in the space sector where India has been a leader for quite a while, the time is ripe to leverage existing assets to allow startups to build on top of them. Small sats revolution is happening globally and there is no reason why India shouldn’t be sending up small sats, maybe even one per week, via re-usable rockets within the next five years, provided startups are allowed to unleash their creativity in this sector. Agnikul, Pixxel, Skyroot, Astrome, Dhruva, Bellatrix, Vesta are among the notable startups trying to reach prime time.
Why not ‘reserve” 20 percent of all government tenders and bids for startups as defined by RBI or SEBI? And if they don’t succeed then open that carve-out also for everyone else?
Thirdly, startups must pursue both growth and profitability even if the former takes precedence over the later, initially only. Or else the crematorium of startups will only grow as it did in the past. Lastly, India still doesn’t have the kind of pioneering innovation required to propel a startup ecosystem. Government must formally give credits to students in NITs/IITs for those who engage in startups while studying and also come up with an entrepreneurship curriculum as an elective in institutions of higher learning. So many Institutes of Eminence have been recognised but none yet for Startups?
Why not a Minister for Startups? Clayton Christensen’s pioneering research showed that it is almost impossible for startups to be created inside established companies. If that be the case, wont it apply to Governments also? Has the time come for a separate Cabinet Minister/ Ministry (albeit a lean one) for startups? Shouldn’t government engage more formally and institutionally with the Startup ecosystems of Silicon Valley, Israel, UK, Singapore to name just a few? Indeed, startups will fail, many should fail. But then if they learn from others, they may fail less, nay, fail better- with lessons for others in the Startup Nation.
—Srivatsa Krishna is an IAS officer. The views expressed in the article are author's personal. He can be reached at @srivatsakrishna

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