Context

• India’s startup ecosystem has experienced a meteoric rise, evolving from a nascent stage to becoming the world’s third-largest hub for innovation and entrepreneurship.
• With over 1,30,000 recognised startups today, up from a mere 400 in 2015-16, this remarkable growth underscores the country’s vibrant entrepreneurial spirit.
• Central to this transformation is India’s robust digital public infrastructure, addressing global challenges such as financial inclusion, sustainable development, and agricultural productivity.

An Assessment of Technological Opportunities and Government Initiatives

• Strategic Government Missions
  • The government has been proactive in creating this growth through several strategic initiatives.
  • The National Quantum Mission aims to position India as a global leader in quantum computing by driving advancements in quantum communication, encryption, and computation.
  • This initiative will enable breakthroughs in sectors like healthcare, cybersecurity, and finance.
  • Similarly, the India AI Mission focuses on leveraging artificial intelligence to solve real-world problems, such as improving healthcare accessibility, optimizing supply chains, and enhancing urban planning.
  • The Semiconductor Mission, aimed at boosting domestic semiconductor manufacturing, addresses the critical need for self-reliance in this vital technology sector, especially in light of global supply chain vulnerabilities.
• Commitment to Research and Development
  • The government has allocated a substantial ₹1 lakh crore for research and development (R&D), reflecting its commitment to fostering innovation.
  • This funding not only supports academic research but also enables startups to explore pioneering technologies, bridging the gap between conceptual research and market-ready solutions.
• Progressive Policies
  • The liberalisation of space exploration and geospatial technology has encouraged private players to contribute to satellite launches, remote sensing, and space research.
  • This has allowed startups like Skyroot Aerospace and Pixxel to emerge as key contributors to India’s space ambitions.
  • Similarly, the government’s focus on drones, electric vehicles, and clean energy aligns with global trends toward sustainability and energy efficiency.

Key Features of Indian Start-Up Ecosystem

• Innovation, Intellectual Property
  • India produces approximately 24,000 PhD graduates annually, driving advancements in science and engineering.
  • However, the country paid $14.3 billion in intellectual property (IP) royalties in 2024 while earning only $1.5 billion, highlighting a significant innovation gap.
  • Strengthening the intellectual property ecosystem is crucial for fostering innovation and establishing India as a global hub.
  • Startups must lead this effort by contributing to advancements in technology and intellectual property.
• Expansion to Smaller Cities
  • The growth of India’s startup ecosystem is no longer confined to metro cities like Bengaluru, Mumbai, and Delhi.
  • Nearly 50% of startups now emerge from Tier II and Tier III cities, including Indore, Jaipur, and Ahmedabad. With half of India’s urban population living in smaller cities, these regions hold immense potential.
  • Supporting these hubs with infrastructure, educational opportunities, and inclusivity — particularly by increasing women’s representation in leadership roles — can unlock untapped talent and drive innovation. 

An Analysis of Funding Challenges for Start-Ups

• Access to Patient Capital in Deep Tech
  • While Indian startups have achieved remarkable growth, those operating in deep tech sectors face a significant hurdle: access to patient capital.
  • Deep tech startups, which focus on highly technical and research-intensive fields like quantum computing, AI, robotics, and biotech, require long-term investments due to the prolonged development cycles of their products and solutions.
  • Traditional venture capitalists and private equity investors often hesitate to fund these ventures, as the returns are not immediate.
  • The Fund of Funds for Startups (FFS), launched in 2016, has been instrumental in addressing this issue to some extent.
  • By committing ₹11,688 crore across 151 Alternative Investment Funds (AIFs), the FFS has catalysed a pool of ₹81,000 crore, demonstrating a multiplier effect in the funding ecosystem.
• Over-Reliance on Foreign Capital
  • One of the key challenges facing India’s startup ecosystem is its heavy reliance on foreign funding.
  • In 2024, Indian startups raised over $12 billion, but approximately 75% of this came from international sources.
  • While foreign capital has played a pivotal role in driving the growth of the ecosystem, over-reliance on it poses risks, including vulnerability to global economic fluctuations and potential misalignment of long-term strategic goals.

The Way Forward to Address these Challenges

• Incorporation of Ethical Practices and Self Regulations
  • India’s startup ecosystem thrives on minimal regulatory interference, creating innovation and flexibility.
  • However, recent incidents of corporate mismanagement in prominent startups like Byju’s and BharatPe have raised concerns.
  • To address these issues, startups must adopt self-regulation frameworks emphasizing accountability, transparency, and ethical conduct.
  • Mentorship, professional boards, and sound financial management are essential for long-term stability.
  • Investors, particularly venture capitalists and angel investors, also play a crucial role in ensuring governance and guiding startups toward sustainable growth.
• Leveraging Domestic Institutional Capital
  • To address this over-reliance, India must bolster its domestic funding ecosystem.
  • Large domestic institutions such as insurance companies, pension funds, and mutual funds hold significant untapped potential.
  • By allocating a portion of their surpluses to startups, these institutions can provide the long-term capital needed to support innovation and growth.
  • This approach also aligns with the broader national interest, ensuring that the wealth generated from India’s burgeoning startup ecosystem benefits domestic stakeholders.
• Creating a Resilient Domestic Funding Ecosystem
  • To ensure the sustainability of India’s startup ecosystem, a resilient and diversified funding environment is essential.
  • Increasing domestic capital participation, establishing specialized funds for high-risk ventures, and developing a culture of long-term investment will create a robust financial backbone for startups.
  • This will enable India to maintain its trajectory as a global innovation leader, driving economic growth and technological advancement.
• Need for a Dedicated Fund for Deep Tech
  • Despite the FFS's success, there is a critical need for a specialized fund of funds exclusively for deep tech startups.
  • These startups operate in domains that are high-risk yet high-reward, often requiring extended periods of development before achieving profitability.
  • A dedicated fund would provide the patient capital necessary for these ventures to innovate without the immediate pressure of financial returns.

Conclusion

• India is well-positioned to become the world’s leading startup ecosystem.
• Favourable policies, a thriving culture of innovation, and collaborative efforts across sectors provide the foundation for scaling startups into global enterprises.
• As India works towards its vision of Viksit Bharat by 2047, startups will play a pivotal role in driving economic growth, creating jobs, and positioning the country as a leader in innovation.