Is India becoming the new Silicon Valley for startups?

Date: 05 Dec, 2022

Startups have become a buzzword in India. The excellent performance of the start-up ecosystem is helping the nation to climb the ladder to become the top startup hub. According to data from the commerce ministry as of June 30, 2022, the number of recognized startups in India climbed from 471 in 2016 to 72,993 in 2022, representing a phenomenal rise of over 15,400%. The 56 diverse industries represented by the recognized startups include 4,500 in new technology fields including the internet of things (IoT), robots, artificial intelligence, analytics, etc. Moreover, India rose in the Global Innovation Index from position 81 in 2015 to position 46 in 2021. Additionally, because of the contributions of the entrepreneurs, India now has the third-largest ecosystem in the world and ranked fourth in the world for attracting investment for technology deals in 2020 and is one of the top locations for foreign investment.

As additional firms merge from all of the startup hubs, India stands a high potential of becoming the next Silicon Valley. The nation’s chances of becoming the next Silicon Valley for entrepreneurs are increased by a number of other factors, such as : 

Technological Development: The development of technology in particular greatly aids the expansion of start-ups. With more than 750 million online users, India is the second most connected country in the world and has a robust technological infrastructure. Additionally, it leads to the development of an inventive and self-sufficient IT industry. In recent years, India experienced an expansion in its internet connectivity, which has assisted in lowering the market entry hurdles for Indian start-ups. Fintech start-ups have flourished in particular as a result of increased financial inclusion due to technology innovation. According to McKinsey, India's IT sector would develop at a 10% compound annual growth rate over the next five years to reach the $300-350 billion dollar milestone. An expansion in digital services, which presently provide 30% of the sector's income, would be the main driver of this growth. It is anticipated that additional investments in growing digital technologies, including reskilling professionals in new growth industries like enterprise SAS ecosystem, cybersecurity, data, AI, 5G, IoT, and product engineering, will be made in order to achieve sector growth.

Growing Urbanization: India is poised to soon become the next major global tech hub as it continues to modernize its urban areas and encourage an entrepreneurial culture. Tech-savvy cities that represent India's rapid urbanization include Bengaluru (formerly Bangalore), Hyderabad, and Gurugram (previously Gurgaon) in the country's north and south, respectively. 

Bengaluru has long been referred to as India's Silicon Valley as it has the largest concentration of companies linked to the Internet, apps, services, software products, etc. It is also growing in terms of investments, which are happening almost every day. According to JLL's 2017 City Momentum Index, which considered aspects like technology and innovation, Bengaluru was previously named the most dynamic city in the world. Although the city was once a center for outsourcing, it has effectively shifted away from this earlier direction by embracing entrepreneurship and cutting-edge technologies. Additionally, the city of Gurgaon draws both local enterprises and foreign corporations. It has swiftly become a center for a wide range of services, including consultancy, IT software, and finance.

Government Support and Initiatives: On January 16, 2016, the government unveiled the Startup India program in an effort to strengthen the ecosystem for fostering India's startup culture in order to spur economic development, encourage entrepreneurship, and provide numerous job possibilities. The Center's initiatives include programs like the Fund of Funds for Startups (FFS) Scheme, the Startup India Action Plan, the Startup India Seed Fund, Startup India: The Way Ahead, the Startup India Showcase, and the Startup India Hub, as well as three years of income tax exemption and self-certification under labor and environmental laws, among others. Moreover, the Indian government has assisted tech companies by waiving rent for businesses and startups operating out of 60 Software Technology Parks of India (STPI) facilities from 1 March to 30 June 2020. Additionally, in order to encourage businesses to design, produce, and assemble goods domestically, it launched the Make in India campaign in 2016. Other forms of assistance such as lowered corporate tax rates, an environment that is friendly to investors, Project Development Cells (PDC), and Empowered Group of Secretaries (EGoS) have greatly aided in the accomplishment of tech companies goals.

Accelerating Foreign Investments: Venture capital and angel investors play a crucial role in the accelerated development of the startup ecosystem because it requires significant funding. Large investors are pouring money into India's startup ecosystem, including Tiger Global, SoftBank, Sequoia Capital, and Accel. According to Tracxn, a startup data tracker, which Nikkei reported, approximately 211 funds made their first investments in India in 2021, which is about 64 higher than in 2020. Andreessen Horowitz and GSV Ventures are two of these new investors. According to Nikkei, hedge fund investments in Indian companies have also increased since 2021. Many investors are making their first investments in India and many more are looking forward to it, for instance, the Chief Product Officer of Tinder, Inc. via LinkedIn expressed interest in investing in India -

“If I had to pick the “next” Silicon Valley in a physical location it would be in India.” Supporting his statement, he wrote- “I am extremely bullish on India and want to find more ways to invest in its great emerging entrepreneurs.”

4-Youth Demography: India’s population has advanced along an exponential technology curve, going from having little access in 2014 to this year having 560 million internet users, second only to China in terms of global connectivity. The nation undoubtedly possesses the ideal framework for entrepreneurship to flourish, with the help of evolving demographics and economic trends. First of all, India has a youth population that is unmatched (more than 65% of the 1.3 billion people living there are under 35, with more than 50% being under 25).

The Indian startup ecosystem has experienced unmatched growth during the last few years, which also boosts the expectations for the future of startups. According to a study by TiE-Delhi and Zinnov, which Mint cited, 62,000 startups are anticipated in India by 2025. Moreover, according to 3one4 Capital, cited by Mint, the aggregate worth of India's startups is anticipated to exceed $1 trillion in 2025. Indian start-ups are now expanding internationally and into new business sectors. Some analysts predict a further uptick through 2022, building on current trends, in industries including health sciences, gaming, and, of course, corporate and SaaS technologies.

Although India possesses the resources and conditions needed to assume a leadership role on the world technology stage, it still faces challenges in realizing its full potential. To maintain this momentum and to transform itself into becoming the world's next Silicon Valley, it is essential to promote more foreign investment, provide targeted training programs, work to retain domestic talent, and establish the appropriate legal framework.

Statistical Information/ Surveys/ Studies:

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