Growth Engine: Start-ups have potential to power India to a Viksit Bharat

This ambitious goal would involve a rather steep climb in the next 23 years from the current GDP of slightly less than USD 4 trillion. It sounds audacious, but history shows that with the right combination of government policies and private sector initiatives, it can be done—in fact, it has been done. Between 1970 and 1995, Japan's GDP grew 25 times from USD 215 billion to over USD five trillion. Its per capita income grew from USD 2,100 to USD 44,000.

One critical element for India to realise its ambitions is creating jobs. However, the capital-intensive model of development is not inherently labor-intensive particularly in a post AI economy where robotic process automation is taking root. Scale manufacturing to generate meaningful employment that helps India encash its demographic dividend via Make in India, while making impact felt, alone may not be sufficient to achieve intended goal. This is where the role of government’s startup support programs that aim to spawn a million entrepreneurs in our entrepreneurial ecosystem comes in.

The Society for Innovation and Entrepreneurship (SINE), one of India’s earliest academia backed incubator birthed at IIT Bombay has been doing just that, by encouraging students, faculty members and alumni to become entrepreneurs, especially the students - turning them into job providers rather than simply job seekers.

Incubators play a critical role in fostering entrepreneurship and nurturing tech start-ups by providing 'Start to Scale' support and taking ideas/research from labs to the market driving innovation and creating economic benefits.

As of June 2024, there were over 1,40,803 start-ups in India. But when SINE started back in 2004, the concept hardly existed in academia. Venture Capital (VC) funds who could provide capital to founders were few and far between. Technology expertise existed within the labs of academic institutions, but it could not be commercialised and remained confined to the laboratories of researchers.

SINE was among the first incubators in India, helping innovators minimize upfront risks and capital requirements. At a time when failure carried a social stigma, our incubator provided a quasi-sheltered environment for students to test drive their business ideas. Access to a shared workspace, laboratories for innovation and technical expertise besides funding and mentoring from the vast pool of experts at IIT-B has become a playbook that other academia-based incubators have sought to emulate. Since many shared resources are available at a fraction of the market cost, it helps nascent ventures control cash burn and dilution of founders' stake.

Incubators play a critical role in handholding students, helping them create a founding team, drawing up a founder's agreement, get capital, and even mediating if there is a dispute. They also help with mentoring, making connections, facilitating market access and giving them a plug-and-play infrastructure to pursue their dreams.

Incubator mentored start-ups also benefit from peer learning from other portfolio firms as it’s highly likely that in a large portfolio there are other teams that have faced similar problems and that experience often comes in handy. One of the most significant advantages that academia-backed incubators offer is easy access to world-class faculty, which is a critical advantage for deep-tech start-ups who want to consult researchers on issues they may be facing in scale up or commercialisation.

Deep-tech startups tend to have a long gestation period during which time they ideate and iterate their product offering multiple times before achieving product market fit. Such ventures often experience what is termed in economics as market failure i.e. such high innovation, long gestation firms get sidelined by investors who prefer betting on quicker yielding less risky ventures. However the quality of jobs created by such incubators is of a superior nature which reduces brain drain and creates cutting edge innovation providing economic security and strategic benefits to the country. For SINE incubated start-ups across areas such as health tech, biotech, medtech and space tech we estimate that almost 5000 odd jobs are of this nature.

The dual impact of incubators and the Government’s various startup support programmes is already beginning to show. According to the Department for Promotion of Industry and Internal Trade (DPIIT) data, Indian startups created over 1.5 million jobs since in 2016. Barring the pandemic years, when the growth rate slowed, start-up jobs have been growing at over 25% year-on-year (Y-o-Y). In 2023, start-ups provided 391,000 jobs as compared to 274,000 in 2022 – a 42% growth rate.

Even if one assumes that this high growth rate is because of a 'low base' effect and, in the future, jobs provided by start-ups grow at a more modest 10% Y-o-Y, the impact can be dramatic. At this growth rate, start-ups could employ over 18 crore people in 25 years, genuinely emerging as India's growth engine!