Start-ups are turbocharging India’s growth, but the real boom is yet to come

The government has envisioned a remarkable goal for India@100: Viksit Bharat—a developed India. The nation undoubtedly has the potential to achieve this, with favourable tailwinds in demographics, domestic consumption potential, open economy frameworks, and technological adoption capacity. To realise this vision, India must invest in several force multipliers, one of which is its start-up ecosystem.

India’s technology-driven start-up ecosystem is a testament to the determination of Indian entrepreneurs. The country hosts the third-largest start-up ecosystem globally, with over 138,000 ventures that have created $550 billion in value, including 115 unicorns and nearly 500 soonicorns. By 2027, the ecosystem is projected to create $1 trillion in value, host 200-plus unicorns, and employ more than 3.5 million specialised workers.

As the ecosystem continues to expand, start-ups are emerging as one of India’s strongest growth engines and force multipliers. While sectors such as e-commerce, fintech, and enterprise technology host the largest number of start-ups, Indian start-ups are not limited to these but also now operate across various industries: education, health, IoT, artificial intelligence (AI), biotechnology, logistics, defence, and space. Increasingly, companies are viewing public markets as a viable growth avenue, becoming hubs for growth where the average Indian can invest.

With a critical mass of diverse start-ups focussed on rapid growth, the positive effects are substantial—economic expansion, increased employment and specialisation opportunities, enhanced capital and liquidity, and greater competition that spurs a new wave of entrepreneurs. India is indeed rising, and the time has come to fully harness this impact.

So far, the ecosystem has achieved remarkable growth with minimal support from the political machinery. However, this is unsustainable for two reasons. First, to realise the Viksit Bharat 2047 vision, it is essential to accelerate the growth of high-quality indigenous companies that prioritise the Indian citizen in their growth strategies. Second, 85% of the inbound capital into this ecosystem is foreign; India has yet to fully create opportunities for its own citizens to invest in the country’s growth story, while overseas investors reap the benefits. To maintain sovereignty decades after gaining Independence and avoid becoming a digital colony, the government must invest in and incentivise more domestic capital within the ecosystem and promote genuine intellectual property (IP) creation.

The SIDBI Fund-of-Funds has been the lone success story of government intervention and has played a key role in developing the ecosystem. However, the government cannot rely on just one successful funding vehicle. Given India’s population size (1.4 billion), economy (nearly $4 trillion, projected to reach $10 trillion within a decade), and the start-up ecosystem’s growth potential, the country needs multiple fund-of-funds.

As a starting point, a Rs 50,000-crore fund-of-funds should be established to provide capital for technological innovations in the private sector, with the aim of generating Rs 2.5 lakh crore in total investment. These funds should be directed towards frontier technology development in areas such as AI, quantum computing, genomics, new materials, and 3D printing. The government could offer incentives like retaining only 50% of pro-rata profits, with the remaining distributed to other investors.

The recent announcement of the ‘Anusandhan Fund’ with a Rs 1 lakh crore financing pool, offering interest-free loans, is promising and could make a significant impact if the loan terms are flexible, include private sector participation, and are managed by an independent committee. However, there is a pressing need for broad-based technology development that the government must prioritise. India’s goal of becoming a Top 3 global economy will require significant investment in research, innovation, technology and IP development. The National Research Foundation (NRF) still lacks substantial allocations to date. It is crucial to structure the NRF grant terms liberally, similar to the National Science Foundation in the US, rather than imposing rigid conditions that stifle innovation. In the US, the world’s leading economy and an innovation powerhouse, research grants and non-term public funding drive entrepreneurship, where funded professors and students commercialise their research and launch start-ups that grow into major companies.

Finally, the government could encourage corporate R&D by offering a grant of 10% of the amount spent on approved R&D projects. The grant would be tax-free for the recipient corporation, provided it is used for the designated project. By doing so, the government would support the development of long-term economic growth and global competitiveness. As start-ups scale into enterprises, they can access these grants to foster genuine IP creation that benefits India.

The author is Chairman, 3one4 Capital. With inputs from Nisha Holla, Research Fellow, 3one4 Capital. Views are personal