Budget 2024: India’s start-up ecosystem seeks redemption after a tepid 2023
Written By Shashwat Sankranti
Published: Jan 30, 2024, 20:00 IST | Updated: Jan 30, 2024, 20:00 IST
India's Finance Minister Nirmala Sitharaman
India has come a long way in its start-up story. From just 350 in 2014, India had over 90,000 start-ups in 2023. At least 111 of them are unicorns - start-ups that are valued over $1 billion. India now has the third-largest start-up ecosystem in the world.
Despite these glitzy numbers, 2023 was a less-than-ideal year for the start-up ecosystem in India.
Only two start-ups turned unicorn last year - quick delivery service Zepto and financial services Incred. The 'unicorns' are considered important since they act as a catalyst for the larger ecosystem and help usher in more investments.
Overall funding dried up. In 2023, startups received $4.2 billion in late-stage funding. This was a 73 per cent drop from 2022. Had it not been for December, this figure would have been much higher.
Late-stage funding refers to funds infused to start-ups that show steady revenue growth.
The weak venture capital activity worldwide played a role in 'funding winter', with investments falling to its lowest level in the last seven years.
Moreover, last year saw at least eight big start-ups facing markdown in their valuations. Unsustainable business models, especially after the pandemic-driven boost in 2021 and 2022, and frequent regulatory crackdowns were some of the reasons for the markdowns.
The recent reports of layoffs at IPO-bound start-ups Swiggy and Flipkart have only added to the uncertainty in the ecosystem.
WION spoke to a number of start-up founders to get a sense of what lies ahead for India’s startup sector.
Outlook for 2024 and beyond
Ashish Bhatia, Founder and CEO, India Accelerator, is optimistic about the next five years, seeing them as the era of "exciting possibilities".
"It is a time where startups can grow like never before, bring in fresh ideas, and bounce back from challenges stronger than ever," says Bhatia.
Debleena Majumdar, Vice-President of Strategy and Research at the Artha School of Entrepreneurship, does not expect any immediate or drastic changes in the start-up ecosystem.
But she expects more inclusivity in the ecosystem in the next few years. A recent WISER report shows that women occupy more senior roles at startups compared to corporates, but only five in 10 women end up at director-level positions at the end of a decade.
"A more inclusive ecosystem could mean a higher presence of women founders, more localised entrepreneurship across sectors and more pathways for value creation, from mergers, acquisitions to well planned IPOs," she says.
Samyak Chakrabarty, Founder of ed-tech platform Workverse, predicts a major shift in perspective of both founders and investors, when it comes to valuing a start-up.
"Start-ups and investors will move from chasing valuations to creating real value - for customers, employees and selves. The initial startup boom was fuelled by the 'burn more than you earn' approach which eventually led to more failures than sustainable success stories," Chakrabarty said.
Chakrabarty's statement is a reminder of the perennial struggle that start-ups face to turn a profit. An Inc42 analysis shows that 82 out of the 112 top start-ups recorded a combined loss of nearly $7 billion dollars last year.
Harkunwar Singh, Co-founder and CEO of ed-tech platform Novatr, believes that the next few years will be a "great time" for tech-first edtech/up-skilling startups.
With over 230 million students in the k-12 system, India is a huge untapped market for the education and skills sector. It is estimated that the sector will be worth $313 billion by 2030, fuelled by cheap data and internet penetration.
"Increasing internet accessibility and the demographic dividend of a burgeoning youth will boost entrepreneurship and make way for innovative solutions that address the diversity of needs in our country," argues Singh.
While funding crunches, regulatory complexities, and problems securing skilled talent exist, he adds that the ecosystem will remain resilient.
Yamini Bhat, CEO and Co-founder of fin-tech start-up Vymo, says start-ups will be in a recovery phase in 2024. Investors, she adds, will look out for logically innovative startups with strong control of their finances.
"Increasing focus on deep-tech start-ups and how their applications can impact the broader industry," she says, adding that start-ups focusing on clean energy and climate change could define the ecosystem in the future.
A new report by data intelligence firm Tracnx has dubbed the 2013-2023 period as the “decade of growth in tech start-ups”. However, a Nasscom-Zinnov report shows that cash flow issues and low customer demand were among the top challenges faced by the tech start-up sector last year.
Tech entrepreneurs like Darshil Shah, Founder and Director, TreadBinary, feel that pivoting to innovative technologies such as Generative AI and advanced data analytics would be the future.
"A supportive ecosystem and government initiatives would create a conducive environment for start-ups over the next five years," he adds.
Budget expectations
Given the Modi government’s push for entrepreneurship and start-ups, a lot rides on the upcoming interim budget.
Bhatia seeks a dedicated fund to help finance start-ups in the emerging industries, adding that the budget must focus on improving the ease of doing business and enhancing innovation.
“The budget, rather than being just a set of numbers, holds the potential to act as the catalyst that propels Indian startups into a new era of unprecedented innovation and global influence,” he argues.
Majumdar says that the Interim Budget needs to provide increased support to entrepreneurs in India's hinterland, often called 'Bharat' by India-watchers.
"Access to credit for small and medium businesses in 'Bharat' remains one of their key growth challenges. The government also needs to enable more multimodal infrastructure access for seamless movement of goods and people in rural and semi-urban India," she adds.
Chakrabarty argues that the biggest enabler for start-ups will be if the mindset of the Income Tax department and the Registrar of Companies can evolve and be more adaptive to realities of young companies.
“If the government wants more start ups to receive funding, the IT authorities need to be briefed that this is as much the country's gain as it is that of private entities,” he says.
Singh wants the upcoming budget to support incubation centres, foster collaboration with academia, or offer skills training programs relevant to the start-up ecosystem.
“The government’s vision of making India a developed country by 2047 will require concentrated investment into the education as well as the infrastructure sector,” he adds.
Bhatt adds that the Interim Budget must focus on grants and incentives for research and development in tech space, including fintech, clean energy, cyber security, agritech and robotics.
The tech start-ups anticipate a forward-looking 'Make in India' approach. The Interim Budget, Shah argues, must emphasise on streamlining Advanced Pricing Agreements (APAs) and Mutual Agreement Procedures (MAPs).
Both relate to global agreements between taxpayers and national administrations that offer greater transactional certainty.
“Clarity in these areas is expected to foster innovation and collaboration, aligning seamlessly with the 'Make in India' initiative,” the TreadBinary CEO adds.