Building a resilient start-up ecosystem

Start-ups can be important engines for growth in both developed and emerging markets, facilitating increased productivity and employment generation. Through innovation and scalable technology, start-ups can play a critical role in socio-economic development and labour market transformation.

The Indian start-up ecosystem has evolved dynamically over the last five years, with over 41,000 recognized start-ups in 2020.¹ Creating over 460,000 jobs across 54 sectors, start-ups are certain to play a critical role in India’s post-COVID recovery, as well as in their journey towards the UN Sustainable Development Goals (SDGs).²

As one of the fastest growing large economies in the world with a population of nearly 1.3 billion people, India displays vast potential for even the most niche of enterprises.³ However, in the wake of the economic and health crises brought on by the COVID-19 pandemic, the Indian start-up system suffered severely due to capital constraints and restricted operations.

In a survey of 250 Indian start-ups in June 2020, it was found that 70% of start-ups surveyed had suffered a negative impact on business due to COVID-19.⁴  Another report found that funding for start-ups during the peak of the pandemic had reduced by around 50%, causing a significant proportion of these enterprises to shut down operations.⁵ This was in the backdrop of a 23.9% contraction of the Indian economy between April and June 2020.⁶

Despite these unprecedented setbacks, the Indian start-up system has proved more resilient than expected. By the end of 2020, it was reported that over 50% of technology start-ups had already started seeing their revenues reach pre-COVID levels while education and healthcare start-ups had experienced considerable growth.⁷ This was also reflected in investment revenue, with the July to September 2020 quarter seeing US$14.90 billion in investment, up from US$4.94 billion in the same quarter of 2019.⁸

Business-friendly policy reforms, lean and adaptable business models and an ecosystem of support have been the keys to success for India’s start-up sector. Having jumped almost 80 ranks in the World Bank’s Ease of Doing Business Index between 2015 and 2020, India now boasts third largest start-up ecosystem in the world, following the United States and China, with over 30 ‘unicorns’ (privately held start-up companies valued at over $1 billion).⁹ As a result of its continued focus on facilitating recovery within the investment community, India’s investment promotion agency ‘Invest India’ was declared one of three winners in the 2020 edition of the Investment Promotion Awards of the United Nations Conference on Trade and Development (UNCTAD).¹⁰

With one of the largest youth populations in the world and an estimated unemployment rate of 7.1%, expanding avenues for gainful employment has never been more critical to India’s social and economic trajectory.¹¹ Aligning with the SDGs, further growth in the small and medium enterprise sector could facilitate increased opportunities for decent work and economic growth (SDG 8) whilst bolstering advances in industry, innovation and infrastructure (SDG 9). This in turn could play a substantial role in reducing inequality, as more people from the informal labour force transition into formal work.

KPMG in India has been assisting the Government to bring its start-up vision to life for several years now. Beyond assisting the Indian government with both the initial Startup India: Action Plan of 2016 and subsequent edition, Startup India: The Way Ahead of 2021, the firm has also taken a leading role in mentoring over 300 start-ups within the Indian ecosystem. Additionally, KPMG in India offers support to start-up clients in nonmetropolitan cities, tier 2 and tier 3, with an intent to help them grow in a sustainable manner. 

As we look beyond 2021, India’s recovery from COVID-19 will offer an interesting case study for social and economic development. Increased global demand for innovative technology solutions is likely to drive further growth in this sector, providing India with a platform to transition into a highly skilled, sustainable and inclusive growth economy.

Mohit Bhasin

Partner and National Leader - Economic Development Advisory
KPMG in India