Startups are rewriting India’s economic roadmap, will lead India’s march to $5 trillion GDP
The world is embracing knowledge economy-led growth. Where physical labour and assets characterise agrarian/industrial economies, and knowledge economies utilise information to augment goods and services rapidly. The knowledge drivers are innovation, human capital, intellectual property, R&D, and focused creation of new specialisations. With the advent of the internet today, winning growth strategies leverage technology, data, connectivity, network effects, computation, AI, and other emerging forces to capture market share, destabilise incumbent institutions, and reap disproportionate gains.
Knowledge-driven fields accelerate value addition to the economy and drive GDP growth, especially in services sectors. For example, MOSPI CSO data indicates value-add of IT services is an incredible 70.6 percent and financial services is 72 percent! Economies with substantial services contributions dominate global GDP – the US is a leading example. Companies built on knowledge drivers like core IP, accelerated channel capture strategies, proprietary data, and embedded networks dominate global markets. In India today, just like the world over, the knowledge economy wave is pioneered by startups.
India is gearing up to an ambitious GDP goal of $5 trillion by 2025. In 2018-19, India's nominal GDP was Rs 190 lakh crore; at $1 at 70, which translates to $2.7 trillion. To reach $5 trillion in 2025, India must grow at 10.8 percent CAGR if the rupee holds at 70; or even faster at 12 percent CAGR if the rupee depreciates to 75. India requires several policy changes to achieve this growth rate; indeed a challenge, but it is hard to argue against having all our energies focused on getting as close as possible to this grand ambition.
On this path, one of the strongest force-multipliers is our innovation engine and the startup economy. IT services paved the way in the 1990s - taking advantage of the internet boom and liberalisation - and has grown steadily for 30 years. Today, it boasts of $181 billion in revenue, exports of $137 billion, value-add of 70.6 percent, and employs over 4.5 million skilled workers. The next step is to identify and bolster industries with similar value propositions.
Since 2014, startups have collectively raised $50 billion across 3,700+ deals. There are 250+ quality accelerator-incubator systems, and about 500 institutional and 2,000 active investors. The ecosystem has already yielded 500+ acquisitions and created 750,000 jobs. Bengaluru, Mumbai, and Delhi-NCR house 50 percent of all active startups, and have emerged as global players. With 39,000+ startups and 33+ unicorns, India is today home to the third largest startup ecosystem, behind only the US and China. Projections indicate that by 2025, India may well have 100,000+ startups, employ 3.25+ million, and produce 100+ unicorns, with a total market value north of $500 billion.
One of India's standout innovation verticals is consumer technology and platforms. Accelerated by the internet and connectivity, for the first time since the pre-colonial era, consumers and producers can communicate and trade directly in India with significant results - accelerated business, logistical improvement, speedy removal of impediments, and access to global markets as well as domestic. The first wave of consumer tech companies was in ecommerce, travel, and payments. Now, India supports large companies in diverse fields like education, mobility, hyperlocal services, and financial services. Companies such as Flipkart, Byju's, Ola, Oyo, MakeMyTrip, Paytm, Swiggy, Zerodha, DailyHunt, etc. have established the Indian startup ecosystem on the global radar.
Enterprise technology is another vertical that is re-engineering how India does business. As Indian companies scale, many startups are building platforms to support them at the enterprise-level. In this space, India does not rely on foreign enterprise tech companies but has a robust homegrown set that designs for India's needs. Companies such as Freshworks, Zoho, BillDesk, Udaan, InMobi, etc have not only proven their value propositions in the country but many of them are now global companies with diverse client bases across the world.
Some of India's prominent challenges have been low productivity, high supply chain costs, trading and middlemen inefficiencies, inadequate access to financing and banking services, and meagre healthcare infrastructure and access. It is not a coincidence that the standout innovation verticals address many of these issues by linking consumers and producers directly. Now we require our whole economy – government and private players – to work together to eradicate these challenges systematically.
A fabulous initiative that exemplifies how government and private players can enhance each other's capabilities is the India Stack or JAM (Jan Dhan + Aadhaar + Mobile). Since the UIDAI initiative in 2010, India Stack has rapidly evolved and deepened its capabilities. Plummeting data costs have accelerated formalisation, digitisation, and the adoption of India Stack by consumer and product developers alike. India Stack provides a set of open API-based public platforms like e-KYC, UPI, DigiLocker, and others. World-class products built on top of the India Stack platform are democratising access to the common citizen.
DBT, or direct beneficiary transfer, a product of the Jan Dhan system, is enabling the transfer of benefits credit directly into citizens' accounts. Over the last five years, a cumulative of Rs 8.4 lakh crore has been distributed over 437 schemes. The advantage of direct digital transfers without intermediaries has yielded an estimated Rs 1.41 lakh crore in savings! A great example of innovation solving national challenges.
India is among the world's most exciting fintech sandboxes. We are revolutionising a billion people's access to financing and capital - by re-engineering how Indians earn, save, spend, and transact online. No other large economy has supported the development and rapid deployment of ground-breaking public-utility-based disruptions like UPI. Since its inception in 2016 till September 2019, Rs 1.61 lakh crore has been transacted via 955 million transactions across UPI – at a staggering scale. Startups such as PolicyBazaar, LendingKart, PhonePe, Open, BharatPe, and others are leveraging these new realities to create unique approaches towards capturing market share and value.
And then there are several companies using deep science innovation to deliver world-class products:
Bugworks designs next-gen antibiotics using proprietary simulation techniques that support computational chemistry and molecular biology.
AlphaICS designs semiconductor GPU chips for the next wave of AI-enabled computing breakthroughs.
ToneTag has revolutionised payment modalities with patented soundwave-supported communications without the internet.
Pandorum produces synthetic liver and corneal tissue using bio-3D printing.
New companies focusing on micro-satellite launch systems are attempting to reinvent satellite strategies.
This is just the tip of the iceberg. Core strategies for all these companies include comprehensive IP portfolios, deeply experienced R&D teams, and access to global markets and partners.
With a critical mass of diverse startups focused on rapid growth, the feed-forward effects are tremendous – economic expansion, added opportunities for employment and specialisation, increased capital and liquidity, and more competition, which will bring in a new wave of entrepreneurs who capture these opportunities. India is indeed rising, and now we must fully harness the impact.
With the latest wave of tax breaks and reduction of corporate tax announced by Finance Minister Nirmala Sitharaman, the Central government has taken a revolutionary step towards incentivising entrepreneurs and risk-takers. These moves are intentionally carrying India away from decades of red tape, and toward open markets where entrepreneurs have the freedom to innovate. This sea change could not have come at a better time. Of the $50 billion that has entered India's ecosystem since 2014, hardly 10 percent is Indian.
We need more Indian capital in the market, and immediate execution of the announced $1.5 billion fund-of-funds under GoI's Startup India. Resolving the debate around angel tax and other legalities concerning startups will allow entrepreneurs to grow their companies without unnecessary headache.
Growing India into a $5 trillion economy by 2025 is a bold ambition and will need contributions from every corner of the country and economy. By supporting risk-takers and wealth-creators building for a better future, we can accelerate India's transformation into an unstoppable economic powerhouse.
This article was originally published as part of YourStory's Tech30 report. Download your copy of the report here.
(Edited by Teja Lele Desai)