The Indian start-up ecosystem: challenges, policies and way ahead

Abstract

In the past few years, India has experienced a surge in the start-up space mainly due to increasing digital and internet penetration, the government’s push for digitalization, and the increasing influence of technology due to globalization. With the start-ups picking up steam, there comes the challenge of developing the start-up ecosystem to encourage more budding entrepreneurs and making the ecosystem sustainable. Therefore, it becomes crucial to analyze and understand the way ahead for the Indian start-up ecosystem and setup policies, frameworks, and institutions that shall bolster the development of the ecosystem. Several popular models for the analysis of start-up ecosystems and the contributing factors for their development were studied. Based on the study, the factors that lead to the development of startup ecosystems around the world were categorized into two categories – driving forces and feedback. Three popular start-up ecosystems, namely Tel Aviv (Israel), Silicon Valley (USA), and Seoul (South Korea), were analyzed using the models studied above to understand the factors that led to the growth of these thriving ecosystems among different socio-economic, geo-political, and cultural conditions. The observations suggest that cultural diversity, government incentives, and incentivized strategic integrity of start-ups can play a vital role in the development of a start-up ecosystem. Some other key factors that acted as the driving force and were common across the three ecosystems were the presence of universities that produced highly-skilled human capital, a highly functional funding system – a booming venture capital industry, and heavy government backing, especially in the initial growth phases of the ecosystems to address and prevent market failures and encourage private investments in the ecosystem which later became the feedback factors for the sustainability of the ecosystem. In the case of India, the Startup India initiative, launched in 2016, marked a significantstep towards building the Indian start-up ecosystem. However, it has been observed that there is still a need to focus on building a culture of entrepreneurship in the universities. Further, the startups should be incentivized to grow with strategic alignment among their innovation and market arms and to focus on the global market as well when designing their product. India needs to introduce international diversity into its start-up ecosystem to pursue the culture of building global products. The government has to play an instrumental role in setting up the infrastructure in the form of incubators, incentivizing private investments for funding, easing regulations for encouraging foreign entrepreneurs to set up in India, encouraging R&D among universities, creating strong links between academia and industries, and removing bureaucratic delays in implementation.