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Start-ups are poised to become India's economic backbone in the next 25 years; here's why

Start-ups are poised to become India's economic backbone in the next 25 years; here's why

India's start-up scene is set to be at the forefront of driving not only financial prosperity but also societal progress in the next quarter century, with opportunities in key sectors

India's start-up scene is set to be at the forefront of driving not only financial prosperity but also societal progress in the next quarter century, with opportunities in key sectors India's start-up scene is set to be at the forefront of driving not only financial prosperity but also societal progress in the next quarter century, with opportunities in key sectors

India’s start-up scene is blazing a trail to the top of the world’s economic ranks. With over 100 unicorns and counting, valued at a staggering $340 billion, India’s start-up ecosystem is already the third-largest in the world. But this is just the beginning.

Start-ups now achieve $100 million in revenue in just five years, a significant improvement from the 18 years it took in 2000, reveals a new report by RedSeer Strategy Consultants. As these young companies continue to mature and grow, they are expected to have a significant impact on both financial growth and societal progress, propelling India forward on the global stage.

Bharat Taking Centre Stage

Building for Bharat, or the population outside of India’s major cities, is a huge opportunity. Often referred to as the “next billion” users, this segment represents a significant portion of India’s population. Building solutions for Bharat has today emerged as a significant opportunity; earlier it was viewed as just a social cause. Start-ups are flocking to this segment to offer accessible and affordable products and services to the low-income, less tech-savvy population. The shift to remote work and learning during the pandemic led to a significant boost in the adoption of digital services among consumers in Tier II and III cities, narrowing the digital infrastructure gap between urban and non-urban areas. Today, around half of the recognised start-ups in India are from Tier II and III cities.

“In the next 25 years, Bharat is expected to see a significant shift towards urbanisation. This will be driven by the growth of India’s physical and IT infrastructure, which will enable more people to access modern technology and services…This will present a wide range of opportunities in various domains,” says Ramkumar Narayanan, Chair of industry body Nasscom’s Product Council and VP-Technology and MD at cloud computing major VMware.

He feels communications software and digital payments will enable easy access to technology for Bharat, while agri-tech, urbanisation, healthtech, IoT, robotics and renewable energy will revolutionise the country by enabling farmers to optimise crop yields, improve healthcare access in rural areas and provide sustainable energy solutions.

Sanjeev Barnwal, Founder & CTO of value commerce platform Meesho, expects an explosion in the number of companies looking to tap Bharat, making it the mainstay of the Indian economy. “One would expect near-total digitisation, novel tech solutions like vernacular, voice, conversational AI along with increased disposable incomes, a young demographic and the explosion of social media to be significant drivers [for growth of this segment],” says Barnwal. Notably, over 80 per cent of Meesho’s 140-million users and nearly 40 per cent of its 800,000 sellers hail from Tier II cities.

Sarath Naru, Managing Partner at venture capital fund Ventureast, says Bharat-tech is no more a niche investment play; it is mainstream. “The decreasing marginal returns from additional investments in the urban sector is driving both existing businesses to switch their focus and new investments in Bharat, as well as investments by VCs,” he says.

The Financial Inclusion Engine

The India Stack, a digital infrastructure consisting of identity, payment, and data sharing rails, continues to help the country widen access to affordable financial services. Digital innovations like Unified Payments Interface (UPI), eKYC, and the Account Aggregator (AA) network have greatly increased access to financial services for those who were earlier unbanked or under-banked and have also boosted the Indian economy by facilitating e-commerce and digital transactions. The next step is to bridge the digital divide in financial inclusion, a massively large and untapped market for start-ups.

The JAM trinity (Jan Dhan Yojana-Aadhaar-Mobile) initiative by the government has enabled nearly all households in India to have access to bank accounts and make efficient, low-cost digital payments via UPI and Aadhaar-enabled payment systems. The government has stated it wants to take financial services to every corner of the country using digital technologies. “Akin to how the UPI infrastructure transformed the digital payments landscape in the past decade, other public digital platforms such as AA, Open Credit Enablement Network and Open Network for Digital Commerce could provide unprecedented opportunities to advance digital financial inclusion for the next half-billion (first-time internet users) and micro, small, and medium enterprises (MSMEs) over the next decades,” says Treasa Mathew, Director, Investments at Omidyar Network India.

A growing number of start-ups are now offering specialised digital financial services to under-banked and unbanked segments of society, such as MSMEs, agricultural sectors, women-focussed financial services, and low-income households. The sachet model in financial services is picking up where fintech start-ups are offering small-ticket loans to consumers.

“Digital financial inclusion start-ups have the potential to increase access to financial services for under-banked and unbanked populations, which can drive economic growth and development. Over the next 25 years, successfully driving financial inclusion for individuals and businesses at the last mile will be key to the economy’s overall success,” says Hardika Shah, Founder and CEO of MSME lending firm Kinara Capital.

Puneet Agarwal, CEO of fintech start-up Money View, says the gap in access to financial services for underserved customers will be reduced with data, AI, technology, and product innovations over the next few years.

The EdTech Conundrum

Perhaps the most discussed and criticised start-up segment in the past year, edtech faced heavy headwinds as the pandemic-induced digital boom began to wind down. However, founders and investors say the potential to create a significant impact and establish thriving enterprises in this field is just starting to take shape.

Making a rough estimate of the edtech opportunity in India, Mohan Lakhamraju, Founder and CEO of Great Learning (acquired by BYJU’S), says “Education today in India is about $30 billion in size. In 25 years, even if you assume the country grows only at 5 per cent per annum, it’s going to be $80 billion. About 40-50 per cent of that would be tech-enabled, meaning $30-$40 billion will be the size of the edtech market opportunity in 2047. There is a high chance that I will be proven wrong on the upside.”

Ashwin Damera, CEO and Founder of executive education firm Eruditus, agrees. “More than 50 per cent [of the population] is below the age of 25, which means about 600 million-plus Indians will be either in school or in college. That is nearly twice the population of the next largest democracy, the US,” he says. If this 600 million has to be a part of India’s demographic dividend, they all have to be educated, either via formal education or through skill development. Damera suggests that the current educational infrastructure may not be able to accommodate all learners and that edtech companies can play a significant role by providing upskilling or reskilling opportunities through technology solutions, or by assisting traditional institutions in offering online degrees using their technology tools.

“We will witness ‘made in India’ learning programmes going global, making India’s edtech an attractive investment destination. It will also open doors for a thriving gig economy, with skill development, career training, and knowledge exchange opportunities for students and teachers,” says Divya Gokulnath, Co-founder, BYJU’S.

Phalgun Kompalli, Co-founder of edtech platform upGrad, is calling on the government to make a substantial increase in funding available for higher education, which he says will help to further promote adult- and skill-based learning as mainstream education options.

The Future is Saas

India’s SaaS progress is irrefutable and its future trajectory is promising, whether measured in total annual recurring revenue (ARR) of $12–$13 billion in 2022, up four times over the past five years; or investment of approximately $5 billion in 2022, up six times, says a recent report by Bain & Company. Of the 1,600 Indian SaaS companies that have now been funded over the past five years, around 14 of them exceed $100 million in ARR (vs around five in 2020) and are reaching this growth milestone as quickly as their US counterparts.

“The trajectory (for Indian SaaS firms) will be faster-paced than what IT services had 20-25 years ago. More and more companies will get created. They will serve global markets to attain a certain size in revenue. A fair percentage of those companies will also serve Indian customers because the Indian market is growing and companies are willing to pay for software,” says Nilesh Patel, Co-founder and CEO of sales automation firm LeadSquared.

Ritu Verma, Co-founder and Managing Partner of VC firm Ankur Capital, expects the adoption of SaaS to grow significantly in India over the next few years with sachet SaaS servicing smaller businesses. Bain & Company expects the Indian SaaS market to grow 20-25 per cent per annum over the next five years to reach close to $35 billion in ARR by 2027, which will account for nearly 8 per cent share of the global SaaS market.

Sustainability Soars

The need for sustainable solutions has never been greater. From renewable energy to sustainable agriculture, Indian start-ups are poised to lead the charge in developing innovative solutions that can help mitigate the effects of climate change and build a more sustainable future. Enzia Ventures, a mid-market venture capital fund, recently predicted that India is likely to attract climate-tech investments to the tune of $20 billion by 2030.

The scope of green tech has expanded beyond large-scale, capital-intensive wind and solar energy projects to new business models across a variety of sectors, such as pollution control, sustainable agriculture, waste recycling, etc., says Sanjiv Rangrass, Venture Partner at Unitus Ventures, a VC firm.

Meanwhile, start-ups are taking advantage of the push towards electrification in the transportation sector by introducing innovative solutions for electric vehicles, including two- and three-wheelers, commercial buses, and freight vehicles.

“Across the world, climate and sustainability are being recognised by corporates as key to building a competitive edge (and to be ahead of regulation). It is here that the Indian tech start-up scene is exploding…[and] creating verifiable carbon offsets, reducing wastage of inputs in industries as diverse as textiles and chemicals, etc. The world of agri-tech players is also making the entire supply chain more efficient, and is seeing incredible levels of start-up and venture activity,” says Anshuman Bapna, Founder of global climate career platform

Anjali Bansal, Founding Partner of climate and sustainability investing firm Avaana Capital, says the sector has transitioned from a sunrise sector to a mainstream asset class and opportunity. “There is truly a perfect confluence of conducive policy, corporate support, entrepreneurial activity and consumer adoption, which is driving growth in climate-tech, as it emerges as a leading sector of national importance… We expect energy transition, resource management, green mobility and climate-resilient agriculture to continue seeing immense growth over the coming years,” she says.

As the start-up landscape in India blooms, it’s evident that these sectors where ambitious start-ups are actively building solutions will be instrumental in propelling the country’s growth and advancement in the coming years. The horizon shines bright for India’s start-ups, with boundless potential for the impact they will have on the nation’s economy and society. 


Published on: Feb 05, 2023, 11:18 AM IST
Posted by: Arnav Das Sharma, Feb 05, 2023, 11:08 AM IST