Data indicates that of the close to 60,000 startups recognized by the DPIIT between 2017 and 2021, about 30% are into IT Services, Healthcare & Life Sciences, and Education. Professional & Commercial Services, Agriculture, Food & Beverages, and Construction account for another 17.5%.
Rapid advancements in technology & the access to internet have led to the emergence of new entrepreneurial opportunities, leading to the creation of new and innovative products, services, and novel ways of catering to the needs of people. As a result, technology-based businesses have emerged as key to job creation, innovation, and wealth creation. This is especially true of startups that are well funded.
A startup venture is a new business in the initial stages of operation and is typically financed by an individual or small group of individuals. These business models are built on innovation and technology such that the demand for their product or service is anticipated to either disrupt existing market or create new ones.
Startups are considered ideas that manifest into commercial undertaking. These are important for any economy due to employment generation, attracting foreign investment, and economic development. By promoting startups, new ideas and innovation will be constantly churned out, paving the way for better competition in the market. However, startup entrepreneurs are faced with many hurdles including liquidity crunch, lack of proper mentorship, bureaucracy in getting clearances, securing patent, and strict exit policies.
Startup India initiative is being implemented by DPIIT
On 15 August 2015, the Prime Minister announced the Startup India initiative which aims to build a strong and inclusive eco-system for nurturing innovation and catalysing startup culture in the country. On 16 January 2016, an Action Plan for Startup India was launched comprising of several programs with the objective of supporting entrepreneurs, and building a robust startup ecosystem. These programs involve providing legal support, funding/incentives, and infrastructure. The Department for Promotion of Industry and Internal Trade (DPIIT) under the Ministry of Commerce and Industry implements the scheme.
Though there is no standard definition of ‘Startup’ in any legislation, DPIIT came up with a definition in 2019 for startups in order to get recognized by the department so that there is uniformity when applying for schemes and benefits. According to DPIIT’s Manual for Procurement of Consultancy and other services , an entity should not have completed ten years from the date of its incorporation/registration and its turnover for any of the financial years since incorporation/registration should not have exceeded one hundred crore rupees to get recognized as startup by the department. This recognition is necessary to avail the benefits under various schemes and seek assistance of the government. Earlier, the time limit was five years and turnover threshold was twenty-five crore rupees for the recognition.
Startups receive benefits such as tax exemptions, self-certification, and relaxation in norms if recognized by DPIIT
Some benefits startups receive upon recognition are:
- Self-certification for compliance of 6 Labour Laws and 3 Environmental Laws through simple online procedure
- Tax exemption under section 80 IAC of the Income Tax Act and tax holiday for 3 consecutive financial years out of the first ten years since incorporation
- Angel Tax exemption under Section 56 if the aggregate amount of its paid-up share capital and share premium of the start-up after issue or proposed issue of shares does not exceed INR 25 crores.
- In addition to making patent application process fast and hassle-free, rebate of 80% of the patent fee is also granted once the patent is filed
- Swift closure of company within 90 days of filing application
- Relaxed norms in all public procurements- Recognized startups can register on Government e-Marketplace as sellers and sell their products and services directly to Government entities.
More than 85,000 startups have been recognized by DPIIT and more than 100 of them are unicorns
According to DPIIT’s dashboard, a total of 85,109 Startups have been recognized as on 12 December 2022. These startups are spread over 656 districts from 30 States and 7 Union Territories of India. These are not restricted to Tier-1 or metro cities. Further, a total of 919 Startups got income tax exemptions.
Unicorns are entities valued over USD 1 Billion. As of 7 September 2022, India was home to 107 unicorns with a total valuation of USD 340.79 Billion. Out of the total number of unicorns, 44 unicorns with a total valuation of USD 93 Billion were born in 2021 and 21 unicorns with a total valuation of USD 26.99 Billion were born in 2022.
Number of startups gaining recognition has increased significantly
The number of startups getting recognized by DPIIT has increased manifold each year. From only 452 in 2016 when the initiative was rolled out, the number has increased by more than 50 times to almost 24,000 as of November 2022. Altogether, these startups have generated a direct employment of almost 8.64 lakhs, 43.5% of which is in the states of Maharashtra, Karnataka, and New Delhi (where Tier-1 cities of Mumbai, Pune, Bengaluru, and Delhi are located).
Almost 3 in 10 recognized startups are in IT Services, Healthcare and Education
In the last five years from 2017 to 2021, most recognized startups are in the sector of IT Services. Of the total 59,787 startups recognized in the said period across 56 sectors, startups in IT services alone account for nearly 13%. This is followed by Healthcare & Lifesciences (9.2%) and Education (6.8%). These three sectors together account for 29% of the recognized startups. Education, Professional & Commercial Services, Agriculture, Food & Beverages, and Construction account for another 17.5%. Others include sectors like HR, Travel and Tourism, Fashion, Textiles and Apparels, Social Network, Aeronautics, Aerospace & Defence, Real Estate, Pets and Animals, Indic Languages, Sports, and many more.
More than 94% of the startups in the sector of non-renewable energy were registered in 2020 and 2021 and 70% and more were registered in the sectors of chemicals and construction in the two years. Startups in waste management, biotechnology, toys and games, logistics, airport operations, and passenger experience started gaining recognition 2020 onwards.
India has third largest startup ecosystem in the world
According to the Ministry of Commerce and Industry, India is the third largest startup ecosystem in the world. This has been attributed to the initiatives like Fund of Funds, Seed Fund Scheme, Income Tax exemption for three years and resolving the issue of Angel Tax. It should be noted that under the Startup initiative, not all startups in the country are recognized. Firstly, not all startups would have applied for the recognition, and on the other hand, not all those which applied would have gained recognition after the screening process. Thus, the actual number of startups in the country is much more. In the subsequent story, we will look at the trend in startups recognized across states and compare it with the total number of companies registered in the country.