The Startup India initiative – The Hindu

Anish Tiwari, Colm O’Gorman and Teresa Hogan, ‘ The good, the bad, and the ugly of ‘Startup India’ — a review of India’s entrepreneurship policy’ , Economic & Political Weekly (EPW), Vol (50), 2021.

A research paper from Dublin City University in Ireland, reviewing India’s entrepreneurial policy Startup India, affirmed its positive impact in reducing regional entrepreneurial disparities. However, it cited shortcomings in addressing the under-representation of women and marginalised caste groups in the national startup ecosystem. The paper was published in the Economic and Political Weekly in December 2021. Startup India was introduced in 2016 as a “clarion call to innovators, entrepreneurs, and thinkers of the nation to lead from the front in driving India’s sustainable growth and create large scale employment opportunities.”

Minister for Commerce and Industry Piyush Goyal informed the Lok Sabha the other week that the entrepreneurial portal had more than 65,000 startups registered. Of which, 40 attained the ‘unicorn’ status in the last twelve months, bringing the total as of date to 90. He stated that India ranked third among global startup eco-systems.

Addressing regional entrepreneurial disparities

The evidence collated by authors of the research paper suggested that the networking, training and mentoring facilities provided by Startup India alongside entrepreneurship outreach campaigns in tier-2 and tier-3 cities, helped address regional entrepreneurial disparities in India. The program was aimed at scouting entrepreneurs from these cities and integrate them into the portal. It would then facilitate a network between venture capital funds, angel networks, banks, incubators, accelerators, universities, legal partners, consultants and research & development institutions.

The paper states the initiative helped redirect many State govts’ policymaking in favour of startups. Quoting from Startup India’s Report (2018), the researchers mention, only four States had dedicated startup policies prior to its launch. After its launch and as of December 2019, 23 States and 2 Union Territories had formulated a dedicated startup policy.

Heavy concentration in megacities

Despite the initiative, the researchers pointed out that entrepreneurship continued to be “highly concentrated” in three megacities, namely, Mumbai, Bengaluru and Delhi NCR. The three cities accounted for 93% of all funding raised between 2014 and 2019. The paper pointed out that India’s venture capital industry is also clustered in and around these three cities.

The same notion was established by the Reserve Bank of India (RBI) in its Pilot Survey on the Indian Startup Sector (2019). The research involving 1,246 participants stated nearly three-fourths of the participants were from Karnataka, Maharashtra, Telangana, Delhi and Tamil Nadu.

Quoting from recent studies, the researchers stated that such concentration can lead to increased economic inequality and hinder emergence of entrepreneurs from industries other than those belonging to the clusters. The spurt of industries (in this case, startups) create employment opportunities, this furthers a demand for leisure and essential amenities among the populace. In turn, this furthers employment, economic activity and efficiency. However, this takes place at the expense of another area having previously failed to enable a suitable supportive ecosystem.

According to results computed by the researchers in the paper, 30% of all States and Union Territories in India have an equal or higher proportionate share in the Dept for Promotion of Industry and Internal Trade’s (DPIIT) recognised start-up pool in relation to their share in the country population.

Ensuring representation

The researchers point out that the 40-page Startup India Action Plan document has no mention of the words ‘caste’, ‘tribe’, ‘marginalised’, ‘indigenous’ or ‘social group’.

According to them, this contradicts the initiative’s very notion of making entrepreneurship in India inclusive. The under-representation could be due to multiple factors, the paper states, such as caste-based economic exclusion, the urban and rural divide, lack of access to quality education and limited social networks. Additionally, the policy’s reliance on technology does not take into consideration India’s digital divide, especially with respect to urban and rural areas.

With reference to government data from 2013, the paper concluded that SC and ST share in ownership of agricultural establishments including farming, livestock, fishery and forestry were higher in comparison to non-agricultural establishments. They were based majorly in rural areas in comparison to urban areas. Most of them operated without any hired workers, indicating that a significant number of these enterprises were necessity-based undertakings not creating any significant job opportunities. According to economist Thorsten Beck, necessity-based or subsistence entrepreneurship refer to businesses that are run informally and through self-employment. A large number of these are set up owing to lack of employment opportunities in the formal sector. “The evidence thus suggests the need for targeted measures to promote technology-and innovation-driven entrepreneurship among SC and ST communities. However, the Startup India policy document in its present form does not address this issue,” the paper noted.

Women in the industry

In February, the Minister of State for Commerce & Industry Som Prakash, in response to a question on women entrepreneurship under Startup India, had informed that of 62,000 startups registered with the DPIIT, 46% of them had at least one woman director. RBI’s pilot survey had earlier stated that 5.9% of participating startups in its survey had a female founder in comparison to 55.5% of the opposite gender. The remaining 38.6% had both male and female co-founders.

Mr Som had also apprised the house of dedicated measures taken to spurt women entrepreneurship. 10% of the fund in the Fund of Funds operated by Small Industries Development Bank of India (SIDBI) has been reserved for women-led startups. Further, all the Alternate Investment Funds where the SIDBI takes equity have been mandated to contribute 20% in business which are women led, women influenced and women employment or women consumption centric. He also informed the house about capacity building programmes and the dedicated webpage for women on the portal. As per the established arrangement, the DPIIT allocates funds to SIDBI, which in turn invests the money in alternative investment firms (AIFs). The latter would then raise matching funds, and post fundraising, invest the money and disburse to startups, the paper informs. This is done to avoid any potential accusation of ‘favouritism’.