Evolution of Indian Startups in the last five years

Last Updated at: May 19, 2020
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startup
Start-up Ecosystem in India – Tracing developments in the last five years
The startups in India saw a 108 per cent growth in total funding from USD two billion in 2017 to USD 4.2 billion this year, National Association of Software and Services Companies. India is becoming a startup hub. Opportunity for growth is enormous, which we had never seen in our lifetime.

 

The last few years in the startup landscape have witnessed several winds of change, several highs and rock-bottom lows. The Indian startup ecosystem, beginning 2013 has been eventful for early-stage companies due to changing dynamics in investor sentiments, government policies and the overall regulatory atmosphere that has undergone major overhauling in the last few years. This article casts light on how the startup culture has matured in the last five years while also highlighting shortcomings and achievements on this front.

A NASSCOM report of 2015 indicates that over 11,500 technology start-ups will be operating in India by the year 2020, generating employment for over 2,50,000 people. Being a large country with a vast demographic dividend of young population, India has the highest working population among BRICs nations (Brazil, Russia, India, China). Therefore, it is uniquely positioning to gain from the setting-up of newer businesses generating economic returns and employment.

We have also seen a large number of Angel Investors and incubation firms being set-up over the last few years and many international conclaves such as the Vibrant Gujarat Startup Summit taking place every year to boost innovation, funding and access to resources.

Register Your Startup

Tracing government-initiatives 

Of all campaigns targeted at the growth of entrepreneurship, Make in India was one of the earliest. Introduced in September 2014 to attract foreign investment, it also encouraged domestic companies to participate in manufacturing goods being imported to replace foreign-made goods with indigenous manufacturing. The Start-Up India campaign of 2015 aims at bolstering the entrepreneurial talent in women to help women lead start-ups with funding and resources.

Another initiative launched in 2016, is the Startup India campaign that gained much prominence for encouraging entrepreneurial growth in India by offering tax exemptions and legal incentives and continues to be one of the most significant moves towards encouraging start-ups in India. It has, however, not been entirely successful in its implementation. There exist loopholes in the system of recognition of an enterprise as a “start-up” in the Department of Industrial Policy and Promotion’s records.

The Digital India campaign of 2015 has been the most impactful, especially for the Fin-Tech startups as it ensures online connectivity to citizens in remote rural areas, giving access to business, technology and services at the grassroots level.

Ease of Doing Business – What the rankings indicate

The Ease of Doing Business rankings by the World Bank provides an objective assessment of business regulations in 190 countries while ranking them across ten parameters. India, recorded a jump of 23 positions in 2018 after a significant leap of 30 positions in the year 2017, making an improvement in the overall ranking by 53 places in two years and 65 positions in the last four years.

It is noteworthy that despite regulatory setbacks, that we improve in critical segments like cross-border trade, construction permits, starting a business, getting credit and electricity.

Critical challenges which the startup industry faces

  1. Angel Tax and Valuation issues:

    The problems with valuation of a startup continue to baffle entrepreneurs and investors alike, as any excess over a fair value determined by the Income Tax department may put the investors and the company under the tax radar. The recent case of several start-ups receiving notices has only added to the misery of those seeking investment from incubators and angel investors.

  2. Revenue Generation:

    One is the most common reason s for the failure of start-ups is a mismatch between projected sales and actual sales, leading to a cash crunch that only intensifies if the shortfall in revenue continues for many business cycles. In such a situation, start-ups also find it difficult to approach banks, lenders and investors for additional capital infusion. Jet Airways, though a mature business found itself cash trapped with not enough funds to pay lease rentals or salaries to which the company finally succumbed.

  3. Infrastructure and Access to Markets:

    Another business dynamic that can reduce costs significantly is access to good roads, inland waterways, airstrips to ensure good regional and international connectivity for shipment. While the Sagarmala project of 2015 aims to modernise India’s ports and improve logistics, the Bharatmala Pariyojana is an umbrella programme aimed at constructing highways, economic corridors and border roads for faster and improved road-transportation.

  4. The multiplicity of regulatory approvals:

    While in Singapore, it takes a day to incorporate a company, in India, it can take weeks to finally receive proper certifications from several regulatory agencies like the Registrar of Companies, GST Registration, PAN etc.

To overcome this, the MCA has introduced integrated filing of the new e-form AGILE alongside the filing of SPICe form. AGILE stands for – Application for Registration of the Goods and Services Tax Identification Number (GSTIN), Employees’ State Insurance Corporation (ESIC) registration plus Employees Provident Fund Organization (EPFO) registration.

When these two forms are filed together, three important registrations for every business namely GSTIN, EPFO AND ESIC can be obtained together leading to saving of time required for several filings.

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Evolution of Indian Startups in the last five years

1367
The startups in India saw a 108 per cent growth in total funding from USD two billion in 2017 to USD 4.2 billion this year, National Association of Software and Services Companies. India is becoming a startup hub. Opportunity for growth is enormous, which we had never seen in our lifetime.

 

The last few years in the startup landscape have witnessed several winds of change, several highs and rock-bottom lows. The Indian startup ecosystem, beginning 2013 has been eventful for early-stage companies due to changing dynamics in investor sentiments, government policies and the overall regulatory atmosphere that has undergone major overhauling in the last few years. This article casts light on how the startup culture has matured in the last five years while also highlighting shortcomings and achievements on this front.

A NASSCOM report of 2015 indicates that over 11,500 technology start-ups will be operating in India by the year 2020, generating employment for over 2,50,000 people. Being a large country with a vast demographic dividend of young population, India has the highest working population among BRICs nations (Brazil, Russia, India, China). Therefore, it is uniquely positioning to gain from the setting-up of newer businesses generating economic returns and employment.

We have also seen a large number of Angel Investors and incubation firms being set-up over the last few years and many international conclaves such as the Vibrant Gujarat Startup Summit taking place every year to boost innovation, funding and access to resources.

Register Your Startup

Tracing government-initiatives 

Of all campaigns targeted at the growth of entrepreneurship, Make in India was one of the earliest. Introduced in September 2014 to attract foreign investment, it also encouraged domestic companies to participate in manufacturing goods being imported to replace foreign-made goods with indigenous manufacturing. The Start-Up India campaign of 2015 aims at bolstering the entrepreneurial talent in women to help women lead start-ups with funding and resources.

Another initiative launched in 2016, is the Startup India campaign that gained much prominence for encouraging entrepreneurial growth in India by offering tax exemptions and legal incentives and continues to be one of the most significant moves towards encouraging start-ups in India. It has, however, not been entirely successful in its implementation. There exist loopholes in the system of recognition of an enterprise as a “start-up” in the Department of Industrial Policy and Promotion’s records.

The Digital India campaign of 2015 has been the most impactful, especially for the Fin-Tech startups as it ensures online connectivity to citizens in remote rural areas, giving access to business, technology and services at the grassroots level.

Ease of Doing Business – What the rankings indicate

The Ease of Doing Business rankings by the World Bank provides an objective assessment of business regulations in 190 countries while ranking them across ten parameters. India, recorded a jump of 23 positions in 2018 after a significant leap of 30 positions in the year 2017, making an improvement in the overall ranking by 53 places in two years and 65 positions in the last four years.

It is noteworthy that despite regulatory setbacks, that we improve in critical segments like cross-border trade, construction permits, starting a business, getting credit and electricity.

Critical challenges which the startup industry faces

  1. Angel Tax and Valuation issues:

    The problems with valuation of a startup continue to baffle entrepreneurs and investors alike, as any excess over a fair value determined by the Income Tax department may put the investors and the company under the tax radar. The recent case of several start-ups receiving notices has only added to the misery of those seeking investment from incubators and angel investors.

  2. Revenue Generation:

    One is the most common reason s for the failure of start-ups is a mismatch between projected sales and actual sales, leading to a cash crunch that only intensifies if the shortfall in revenue continues for many business cycles. In such a situation, start-ups also find it difficult to approach banks, lenders and investors for additional capital infusion. Jet Airways, though a mature business found itself cash trapped with not enough funds to pay lease rentals or salaries to which the company finally succumbed.

  3. Infrastructure and Access to Markets:

    Another business dynamic that can reduce costs significantly is access to good roads, inland waterways, airstrips to ensure good regional and international connectivity for shipment. While the Sagarmala project of 2015 aims to modernise India’s ports and improve logistics, the Bharatmala Pariyojana is an umbrella programme aimed at constructing highways, economic corridors and border roads for faster and improved road-transportation.

  4. The multiplicity of regulatory approvals:

    While in Singapore, it takes a day to incorporate a company, in India, it can take weeks to finally receive proper certifications from several regulatory agencies like the Registrar of Companies, GST Registration, PAN etc.

To overcome this, the MCA has introduced integrated filing of the new e-form AGILE alongside the filing of SPICe form. AGILE stands for – Application for Registration of the Goods and Services Tax Identification Number (GSTIN), Employees’ State Insurance Corporation (ESIC) registration plus Employees Provident Fund Organization (EPFO) registration.

When these two forms are filed together, three important registrations for every business namely GSTIN, EPFO AND ESIC can be obtained together leading to saving of time required for several filings.

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Avani Mishra is a graduate in law from the National Law Institute University, Bhopal. She qualified the Company Secretary course with an All India Rank 1 and is a recipient of the President’s Gold Medal for her academic distinctions. She also holds a B.Com degree with a specialization in Corporate Affairs and Administration.