Economic Survey 2022-23: Indian startup ecosystem faces several challenges, causing companies to ‘flip’

The Indian startup ecosystem is facing several challenges despite recording an increase in the number of startups to 84,012 in 2022 from 452 in 2016, according to the Economic Survey Report 2022-23.

The challenges include funding, revenue generation struggles and lack of access to supportive infrastructure. The regulatory environment and tax structures have also posed hurdles for startups.

To circumvent these challenges, many Indian companies are setting up bases overseas, especially in countries with favourable legal environments and taxation policies, the report highlighted.

The process of transferring the entire ownership of an Indian company to an overseas entity, including the transfer of all Intellectual Property and data owned by the Indian company, is called ‘flipping’.

Typically, flipping happens at the early stage of the startup. However, this trend can be reversed with active collaboration with the government-related regulatory bodies and other stakeholders. Further, companies are also exploring ‘reverse flipping’, the survey document stated.

“With solution-oriented strategies, startups will continue to be the messengers of India’s entrepreneurial dynamism,” the report read.

The Department for Promotion of Industry and Internal Trade (DPIIT) recognised that startups have created more than 900,000 direct jobs, according to the report.

The country has recorded a 64 per cent increase in the average number of new jobs in 2022 relative to the last three years. 

Further, tier 2 and 3 cities are emerging as hotspots, as they are home to about 48 per cent of our startups. 

“Lots of startups and innovation are coming from emerging cities like Bhopal,” Arvind Kumar, director-general of Software Technology Parks of India, said at the India International Science Festival held in Bhopal between January 21-24, 2023.

“Startups are being envisioned as the spine of new India, as they encourage the youth to become job creators rather than job seekers,” the Economic Survey Report 2022-23 read.

India has some 1,000 agritech startups. The sector has seen a spike in private equity investments over the past four years, recording an increase of more than 50 per cent per year to aggregate roughly ₹6,600 crores, the report noted. 

More than 500 startups are working in the millet value chains. The year 2023 has been declared as the International Year of Millets.

Tech startups

Unified Payment Interface (UPI) has opened up many opportunities for startups and e-commerce players in the country to provide innovative solutions for customer experience, according to the report.

Companies like Google, WhatsApp, Walmart, True Caller, Amazon, Uber and others are providing UPI services.

Between the financial year 2019-2022, UPI-based transactions grew in value and volume to 121 per cent and 115 per cent, respectively, the report stated.

Further, the government expects new economic opportunities to come up with the rollout of 5G services.

It could spur innovations by start-ups and business enterprises and advance the Centre’s 'Digital India' vision.

Additionally, startups are entering the arena of value-added services such as satellites. On November 18, 2022, Hyderabad-based Skyroot Aerospace scripted history by becoming the first private Indian organisation to launch a rocket from Indian Space Research Organisation (ISRO)’s launchpad in Sriharikota.

This followed a 2020 decision from the Centre, which opened up the space sector to private players. 

But there are problems. “The opening up of the space sector for private players will happen when the government becomes the anchor customer by procuring rockets and satellites from the private setup,” Narayan Prasad, the co-founder of satsearch. co, a global marketplace for the space industry, previously told Down To Earth (DTE).

This, he added, will create demand. “That’s the real opening, and we’ve not seen that happen.”

Pawan Kumar Chandana, co-founder of Skyroot Aerospace, had previously told DTE that ISRO has its launch vehicles to meet its requirements, adding that it was too early to comment on whether they would serve the space agency in the future. “They have a self-sufficient ecosystem.” 

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