The startup ecosystem is thriving in India. The constant influx of funding from venture capitalists and investment groups pouring in on new ventures has nurtured the foundation of the Indian startup economy, giving birth to a sea of Indian unicorns paving the way for new entrepreneurs and businesses. Now, observing this scenario through a typical lens supports the narrative that the growth of startups in India has a positive impact on the growth of the nation. And while this narrative is heavily supported and shared by the masses, there’s a catch.
The impact of startups on Indian economy is not always positive, I share the view that the impact is mostly positive, but there are powerful indicators of socio-economic growth that seem to have a negative correlation with the growth of Indian startups. In this extract, we will look at how the impact of Indian startups on the Indian economy is not always positive, and then we will dive into the positive impact of startups on the Indian economy.
Analyzing the Impact of startups on Indian Economy
Startups are often perceived as bodies for wealth creation. And that’s partially true because they do create value and wealth, but on a broader spectrum. They create jobs, innovate, and push the boundaries of creativity to reinvent strategies and processes to compensate for the lack of experience and resources as a business. Startups create value for people across the board, they offer individuals a platform to explore their creativity and inquisitiveness and enjoy the flexibility that’s rarely offered by MNCs.
Therefore, it’s natural to correlate the growth of the Indian economy with the thriving startup ecosystem. According to a detailed report published by Shri Ram College of Finance on the Impact of startups on the Indian economy, there’s a direct correlation between the GDP of a nation and the number of registered startups on a yearly basis. The graph shows a consistently increasing trend in GDP with an increase in registered startups.
And it’s a good point to study the impact of startups on Indian economy if you base the overall growth of the society completely on one socio-economic indicator(GDP). However, that’s not an accurate representation of data and therefore an ineffective way to gauge the impact of startups on Indian economy. The growth of society depends on multiple indicators like per-capita income, employment rate, literacy rate, and child mortality rate.
Another study in the same report published by Shri Ram College of Finance correlates the per-capita income of a country to entrepreneurship. Now, if we predict the outcome of the study based on the assumption that startups have a positive impact on the economy, the correlation between the two should be positive. But that’s not true in this case, the study suggested that the correlation between the per-capita income of a country to entrepreneurship is mostly negative. Moreover, a report collectively published by The Gallup Organization, the US Census Bureau, and the Bureau of Economic Analysis shows a negative correlation between entrepreneurship and the growth-inflated GDP.
So to say that the growth of a society, in general, is directly linked to the growth of startups in a country is inaccurate. Startups do expedite growth in certain areas of the economy and do contribute positively to the growth of a nation in most cases. However, that’s not always the case, depending upon the structure of growth and nature of startups in the country, the growth of the society may or may not have a positive correlation with entrepreneurship.
The Positive Impact of Startups on Indian Economy
Although the conversation above underlines that the growth of the startup ecosystem does not necessarily have a positive impact on all socio-economic indicators for growth. However, it does have a positive impact on most of them, so let’s expand upon some common areas of growth inflicted by the growth of the startup ecosystem.
Startups are the primary source of innovation in the corporate space. They lack the infrastructure, resources, and experience that the big businesses have, and therefore the impetus for growth lies with them coming up with innovative ideas to overcome the gap and improve their operations and processes. Startups are always on the lookout for innovative ideas to improve productivity, boost manufacturing, and increase output.
A competitive environment facilitates innovative tendencies in society and that has a positive impact on the quality of products and services offered in the marketplace. It also puts our economy on a global scale in terms of quality and competitiveness.
According to the national sample survey report of 2013, only one in four urban people under 29 years were utilized despite having a diploma or certificate. This means that in 2013, only 25% of youth under 29 years of age had a job, and according to PLFS data, the percentage has increased to 77% as of 2019.
Government policies like “Startup India” and “Standup India” facilitate an open market for startups in the country, which in turn boosts employment opportunities for the young population. Government looks at startups as a vehicle for societal welfare and economic growth. The government defines startups as follows; “An entity will be identified as a startup if it is working towards development, commercialization, and innovation of new products, services, or processes driven by intellectual property or technology.”
Corporate Synergies and Outsourcing
The startup ecosystem promotes synergies between small enterprises and huge MNCs. It provides a platform for corporate giants and new businesses to co-exist instead of big businesses trying to crush small ones. Synergies are extremely important, especially for startups, because they have the competence to offer high-quality services, but lack exposure to high-profile clients at the initial stage. Therefore synergies act as a mutual benefactor for both. It helps startups gain exposure and experience while building a portfolio to leverage in the future.
It helps corporates onboard more clients and offloads pressure to focus on crucial growth strategies or internal research and development. And that’s the only way forward. Outsourcing a fraction of the work offers big businesses extra bandwidth to work on the important stuff, and it also nurtures business relationships that may prove to be of significant importance in the future.
Influx of Foreign Funds
According to a World Economic Forum report, consumer expenditure in India is predicted to increase from USD 1.5 trillion at the moment to USD 6 trillion by 2030, making it the third-largest consumer market after the US and China.
And the world recognizes the immense potential of India as a market. Startups act as a gateway for investment in India. As an investment fund or a VC looking to capture an early opportunity to capture multi-fold returns in the medium to long term, Indian startups are the perfect opportunity.
Foreign influx strengthen India’s economy and acts as a primary defense mechanism during an economic crisis. The Indian startup ecosystem is aptly equipped to bolster and raise multiple rounds of funding, and inspire new entrepreneurs to start new ventures.
India is pushing for self-reliance and the startup ecosystem is at the forefront of this initiative pushing the cause forward with indigenously developed products and services to strengthen India’s position on a global scale and turn it into an enabler instead of being enabled through imports.
Self-reliance in the space of employment and products or services is an important link to India’s success as a global economy. With the world looking at India as the biggest consumer, we need to showcase our mettle as manufacturers and service providers, so that we can take the center stage and leverage international markets to accelerate our growth as an economy.
Startups are an important part of the Indian economy and have a huge impact on the socio-economic development of the nation. They push for better employment rates, better products and services through competition, and better synergies in the corporate world. These characteristics highlight India’s position as a Top 5 economy in the world. Startups are growth enablers and stage setters for innovation and have a predominantly positive impact on the Indian economy. And as the startup space expands in India, it brings with it a wave of empowerment and self-reliance that will propel India toward being the biggest economy in the world.
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