Indian startups face innovation challenges despite growing support

Source: The post Indian startups face innovation challenges despite growing support

has been created, based on the article “Are Indian startups not scaling up on innovation?” published in “The Hindu” on 18 April 2025. Indian startups face innovation challenges despite growing support.

UPSC Syllabus Topic: GS Paper3-Economy-Indian Economy and issues relating to planning, mobilisation, of resources, growth, development and employment.

Context: Union Minister Piyush Goyal’s remark at Startup Mahakumbh that Indian startups are not innovating enough and are limiting themselves to grocery delivery sparked a wider debate. The discussion focuses on the level of innovation in Indian startups, government support, availability of capital, and challenges in scaling technology ventures.

For detailed information on Deep Tech Startups-Significance & Challenges read this article here

The Startup India initiative has created a broad and growing ecosystem

1. Dedicated Support: Over 20 Central Ministries now have startup-focused policies.
2. Substantial Growth: Around 1.65 to 1.70 lakh startups are registered with the Department for Promotion of Industry and Internal Trade (DPIIT).

3.Diverse Funding: Startups are receiving both equity and debt funding, including support from banks.

4. Institutional Engagement: Many Indian states have launched startup policies, extending support beyond the central level.
5. Cultural Shift: There is a notable change in mindset. More people are now choosing entrepreneurship, showing growing confidence in starting new ventures.

Venture capitalists define innovation based on user value and market need

1. Early Investment Trends: Initially, innovation meant enabling online services, such as those offered by e-commerce platforms.
2. Current Focus Areas: Now, venture capital is moving towards deep tech—including AI, blockchain, and electric mobility—signaling a shift to more complex technologies.
3. User Benefits: Innovations that provide clear user benefits or a better experience are more likely to attract investment.
4. Sustainable Competitive Advantage: Patents or long-term advantages help startups stand out and secure investor confidence.
5. Market Relevance: Even strong innovations must solve real and growing market needs to be commercially viable.

Deep tech startups face structural and financial barriers to scaling

1. High Capital Requirement: These startups need significant investment early on, but usually generate no revenue at first.
2. Insufficient Government Funding: The Startup India Seed Fund offers around ₹50 lakh, which is not enough to scale deep tech ventures.
3. Limited Private Investment: After initial support, follow-up funding from the private sector is lacking.
4. Dependence on Foreign Capital: Most risk capital comes from abroad, mainly from the U.S., limiting local ownership and influence.

Indian startups face several obstacles in moving up the value chain

1. Limited Domestic Spending: India’s per capita GDP is around $3,500, far lower than China’s $12,000–15,000, restricting market demand.
2. Spread-Thin Funding: Government support often goes to many startups in small amounts, making it hard for any to scale meaningfully.
3. Bureaucratic Hurdles: Complex regulations and approval delays hinder startup growth and operations.
4. Lack of Strong Domestic VCs: The absence of powerful home-grown venture capital firms prevents strategic long-term investment.

Startups are contributing to society, but their impact varies

1. Earlier Impact: Initial tech growth, especially in IT and outsourcing, created mass employment and broader impact.
2. Recent Trends: Today, many startups target urban elites, such as those offering fast delivery services, narrowing their impact.
3. Success Stories: Firms like Freshworks, listed on NASDAQ, show Indian startups can grow globally and inspire others.
4. Spreading Innovation: Successful founders often lead to a second wave of startups by mentoring or funding new ventures.
5. Policy Reach: The government’s support across sectors reflects a broader aim to promote inclusive startup growth, beyond just IT.

Question for practice

Discuss the key challenges and opportunities faced by Indian startups in achieving innovation and scale.