From Bengaluru to Odisha, how Indian states are revolutionising start-ups

On August 26, 2022, Odisha Chief Minister Naveen Patnaik flagged off the ‘Startup Odisha Yatra 2.0’, which passed through all 30 districts in the state. The mobile start-up incubator covered more than 100 higher educational institutions over a period of 60 days, collecting 1,300-plus start-up pitches from students. Seeing its success, the state government felt the principles and mindset of entrepreneurship should be instilled in more students from the grassroots level and launched a second campaign named ‘Start-up Express’, that has toured across 19 districts, and received about 1,270 ideas from school-going students.

Odisha’s start-up drive is only a fragment of a grand narrative that is beginning to take shape in the country. From the buzzing tech hub of Bengaluru to the bustling metropolis of Mumbai and picturesque hills of Himachal Pradesh, a new wave of innovation is sweeping across India—and it’s being driven by the state governments. With a renewed focus on fostering a start-up culture, they are taking bold steps to create a supportive ecosystem for entrepreneurs—from incubating them, providing funding and mentorship, enabling market linkages to simplifying regulations for them.

From a mere 452 ventures in 2016, India has seen a veritable proliferation of start-ups, with nearly 90,000 new-age entities being recognised by the Department for Promotion of Industry and Internal Trade (DPIIT) as of January 24, 2023. About 30 of the 36 states and Union Territories in the country have formulated dedicated start-up policies.

Union Minister for Commerce and Industry Piyush Goyal, speaking at the recent National Startup Awards, said that the government today thinks like a start-up, relentlessly focussing on newer and better ideas. “Many more innovative ideas and initiatives must be nurtured to ensure that the nation grew at a much faster pace,” he had said.

According to a report released in December 2022 by StrideOne, a tech-led financial services platform, the number of start-up registrations will grow at a CAGR of 25 per cent between 2022 and 2027. The report also says that start-ups will contribute about 4-5 per cent to India’s GDP over the next three to five years, up from 2.5-3 per cent currently.

Focus on Small Towns

For states with well-established start-up ecosystems, the next step is to expand the focus to smaller towns. For instance, Karnataka, known for having the most thriving start-up scene in the country, is looking to leverage its leadership position in the sector to become a strong contributor to the national GDP while establishing more start-up hubs across the state. C.N. Ashwath Narayan, Karnataka’s Minister of Electronics, Information & Biotechnology and Science & Technology, says the government, with its new Startup Policy 2022, wants to position the state as the largest connected start-up ecosystem by bringing coherence into digital governance, simplifying rules and legislations for technology, and focussing on building the state’s hi-tech prowess, digital infrastructure and emerging technology clusters beyond capital Bengaluru across Tier II and III towns.

Under the Karnataka Digital Economy Mission, which aims to foster a Bengaluru-like start-up economy in cities like Mysuru, Mangaluru and Hubli-Dharwad, the state has already registered more than 400 start-ups and aims to have 800 start-ups by the end of this financial year. Under its new start-up policy, the government plans to create 50 new-age innovation networks in technology institutions outside the Bengaluru Urban district. The government has also announced plans to set up a dedicated start-up park near the Bengaluru international airport.

“Karnataka’s vision is to become a champion state for start-ups and foster high growth of 25,000-plus start-ups in the coming years. The state can accelerate its growth to GSDP (gross state domestic product) of $500 billion by 2026 and $1 trillion by 2032, provided it grows at a CAGR of 16.3 per cent. These targets align with India’s GDP goals of $5 trillion by 2026 and $10 trillion by 2032, meaning the state will become 10 per cent of the national economy,” says Narayan.

Then there’s Telangana. The state is positioning ecosystem enabler T-Hub as the world’s most extensive innovation hub. Boasting of a sprawling 582,000-sq. ft campus across 18 acres, Hyderabad-based T-Hub brings together different stakeholders of the sector to a single location to enable innovation. The focus now is to establish such robust ecosystems across the state.

“We believe in the 3I mantra—innovation, infrastructure and inclusivity—that will be the road map to nurture a robust environment for entrepreneurship in the 33 districts of the state,” says K. T. Rama Rao, Telangana’s Minister for IT, Industries & Commerce. He adds that while the state keeps innovating through frameworks and policies to target start-ups from various sectors, it also builds infrastructure to decentralise the efforts into Tier II and III cities. “We currently have IT towers with state-of-the-art facilities operational in Warangal, Karimnagar and Khammam districts, all for inclusive growth. In the next 25 years we look forward to identifying talent and creating entrepreneurs from all the corners of Telangana irrespective of the demography and geography,” says Rao.

Many state governments have been working hard to promote innovation and technological advancement by creating incubators, accelerators and Centres of Excellence (CoEs), either on their own or in partnership with private organisations. They have also been building COEs in cutting-edge technologies, and providing specialised facilities to support specific industries.

“Odisha, particularly Bhubaneswar, has emerged as an educational hub during the last one and a half decades. The state has been a top destination for domain-specific R&D organisations. To leverage these institutional infrastructures, the Startup Odisha policy placed a strong focus on academic and research organisations,” says Omkar Rai, Executive Chairman of Startup Odisha. He adds that the state has 15 R&D institutions which act as nodal agencies in their particular segment and “supports us in evaluation and mentoring of start-ups in their respective domains”.

In Uttar Pradesh, the state introduced a new, dedicated Startup Policy 2020 with an aim to build 100 incubators covering all the 75 districts in the state. Abhishek Tiwari, Advisor to the StartInUP Program of the UP government, says that UP is a large state with four to five times more people than other strong start-up states and multiple cities that are of a “similar stature”. “We wanted to involve more people and spread the ecosystem across the state,” he says.

With an aim to create India’s largest incubation network, UP has so far established 55 incubators across 23 districts. The new policy also aims to generate 150,000 job opportunities. Tiwari says that there is at least one start-up present in every district in the state. UP has also established three CoEs—for artificial intelligence at IIT Kanpur, at its Noida outreach campus; for drone technology at IIT Kanpur; and for medtech at Sanjay Gandhi Post Graduate Institute of Medical Sciences in Lucknow—and five more are being established in sectors such as quantum computing, spacetech, 5G/6G, additive manufacturing and blockchain.

Meanwhile, the Kerala Startup Mission (KSUM)—the central agency of the Government of Kerala for entrepreneurship development and incubation activities—has a strong network of innovation and entrepreneurship development centres (IEDCs) in universities and colleges. There are over 375 IEDCs or mini-incubators—that work as launch pads for ‘studentpreneurs’—actively operating in the state. The government is also setting up innovation zones in government departments like Kerala State Electricity Board and Kerala Water Authority to identify problem statements that can be solved by start-ups.

Many states have also incorporated a strong emphasis on gender diversity and inclusivity in their start-up policies. For instance, KSUM conducts programmes such as Kerala Women in Nano Startups (K-WINS) and hackathon InnovatHer. It is also planning an exclusive pre-incubation programme for early-stage women-led start-ups. KSUM also provides soft loans and productisation grants to women and transgender entrepreneurs.

The Karnataka government, meanwhile, runs a programme called Elevate Women Entrepreneurship that provides grant-in-aid to women-led start-ups without taking equity. The Karnataka Innovation and Technology Society has also selected seven agencies to run acceleration and incubation programmes exclusively for women-led start-ups. Nearly 100 women-led start-ups are being incubated/accelerated under this programme.

Coming back to Odisha, the state’s Startup Policy, launched in 2016, had a goal of having 33 per cent of start-ups led by women. According to Startup Odisha’s Rai, currently 43 per cent of registered start-ups in the state are run by women.

Funding Start-ups

While India continues to be a prime destination for private equity and venture capital investors, having garnered $24 billion in 2022, state governments are complementing these efforts by providing support to early-stage companies through initiatives such as fund of funds and other financing programmes.

For instance, UP has created a Rs 150-crore fund for direct investments and a Rs 1,000-crore fund of funds, being managed by the Small Industries Development Bank of India (Sidbi). On the other hand, Odisha is in the final stages of establishing a Rs 1,200-crore fund of funds while Kerala has set up a Rs 1,000-crore fund of funds. And recently, Tamil Nadu launched an angel platform for the global Tamil diaspora to make investments in start-ups based in the state. It already has a Rs 250-crore fund for start-ups. Karnataka, too, announced a Rs 100-crore fund last year. As for Maharashtra, it runs several funds—including the Maharashtra State Social Venture Fund, Maharashtra Defence and Aerospace Venture Fund and a dedicated fund for entrepreneurs from marginalised communities—all investing in start-ups.

According to the central government, the Fund of Funds for Startups (FFS)—launched under the Startup India initiative in 2016—has committed Rs 7,385 crore to 88 alternative investment funds (AIFs) as of September 24, 2022. FFS was announced with a corpus of Rs 10,000 crore. Collectively, the AIFs supported by FFS have a target corpus of more than Rs 48,000 crore.

Industry veteran Padmaja Ruparel, Co-founder of Indian Angel Network, says that seed-stage funding, both public and private, needs further unlocking to tap into the true potential of this sector. “For the size of our country, we have an abysmally low number of angel investors whereas angel investments are giving high returns. A high-quality angel investor ecosystem brings money, mentoring and market access. This will enable high returns with low failure rates for investors, but will enable companies to create jobs and value. In summary, Indian start-ups can fuel India to a $5-trillion economy,” she says.

What lies ahead is an enormous opportunity and India will be better equipped to fully realise the start-up potential if the government can iron out the regulatory issues and ambiguity around matters such as taxation of carried interest, treatment of long-term capital gains, restrictive foreign pricing rules and co-investment framework, and the use of convertible instruments, among others.

“India’s start-up ecosystem should be the global leader by 2047. It could well be the bedrock of innovation and entrepreneurship, the most enabling business environment and the home of value, wealth, and job creation. The government has taken a proactive stance to encourage start-ups and changed several policies and laws to create an enabling environment for them. But as they say, the more we do, the more there is to do,” says Ruparel, setting the tone for the future. 

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