Impact of Startups on the Indian Economy

INTRODUCTION

"Entrepreneurship" has become a buzzword in current policies and public debate. Promoting
entrepreneurship in the form of startups is a policy activity being given a high priority all over the world, at
the transnational (for example, the EU), national, regional, and local levels.

A startup venture could be defined as a new business in the initial stages of operation, beginning to grow,
and typically financed by an individual or small group of individuals. It is a young entrepreneurial, scalable
business model built on technology and innovation wherein the founders develop a product or service for
which they foresee demand through disruption of existing or by creating entirely new markets. Startups are
nothing but an idea that manifests into commercial undertaking.

Entrepreneurship in India is thriving due to India's great tech talent and entrepreneurial zeal. Successful
start-ups are at the forefront of driving massive tech transformation in India and job creation. And many of
them are building products and services that are competing globally. To understand the development of the
entrepreneurship industry in India, we have to first look at the pre-1991 era. This was when most of the
business and trade depended on working with governmental institutions and catering to the needs of the
government. Social connections and bureaucracy were far more critical than the original function of the
business. The primary aim was to reduce the consumption of western goods. But after the government
liberalized the economy in 1991, the business landscape in the country changed suddenly. Traditional
businesses had to compete with the more excellent foreign companies with better technology. This helped in
the boom of IT culture in India as a family, or traditional companies, were all involved in developing
traditional goods. In 2006, the share of China and India at the global level was only 2 percent, but they can
account for a 25% share worldwide today. India is now ranked 3rd (only behind US and China) for the most
significant number of start-ups and is at the top in the number of new start-ups daily. According to the
reports, around 50,000 start-ups were set up in the country in 2018. This indicates that India has a
tremendous amount of business opportunities.
According to the government notification, an entity will be identified as a startup if it works toward
developing, commercializing, and innovating products, services, or processes that use innovative technology
or intellectual property.

A flood of business enterprises has been clearing crosswise over India. The accomplishment of new
companies like Flipkart, Snapdeal, Paytm, Ola, and others has veered the talk towards high valuations. Be
that as it may, what we generally observe is particularly a hint of a more significant challenge. Behind each
high valuation of today is an account of blood, sweat, drudge, and tears. For each business visionary with a
stunning example of overcoming adversity, some endless other people have fallen by the wayside. The going
has regularly been a long way from the assumed sentiment of thinking outside the box, upsetting the request,
and changing the world. It is a want to change the world that drives influential business visionaries, for only
they have the visually impaired energy that is regularly the distinction between progress and disappointment.
They are the ones who cherish the trip more than the goal. At any rate, the advanced new businesses, the
unmistakable ones, result from a reasonable need. They take care of genuine issues.

India has more than 1.2 billion individuals, 31% of which, i.e., 379 million, are between 18 and 35
(According to Census Report, 2011). What is more exciting is that many of these youngsters are looking for
jobs, despite being educated. For instance, only one in four urban people under 29 years is utilized even
though they hold no less than a diploma or certificate (National Sample Survey Office Report, 2013). The
Government's point has been to open business doors for youth while concentrating on fast economic growth.
Building a favorable startup environment is one of the components taken by the Government of India
towards creating openings for work. The Government has expected that support for innovation and
development will enhance entrepreneurship development and instill an entrepreneurial spirit in the minds of
the youth, which would, in turn, accelerate economic growth and development.

In March 2010, Mrs. Pratibha Patil, the twelfth President of India, reported the Government's vision by
proclaiming the present decade as the "Decade of Innovation" (Nation Innovation Council, 2010). The
Government has taken striking endeavors by declaring promising strategies and initiatives by different
government divisions toward satisfying the above vision.

The Government has started an initiative, "Startup India," with the expectation to construct a strong eco-
system for supporting grass root level startups with innovation in the country that will generate large-scale
employment opportunities and drive sustainable economic growth. The Government, through this initiative,
intends to empower Startups to grow through their design and innovation.
In this paper, the foundational points of interest are discussed to provide a context for the current startup
environment in India, one that is innovative and presents some of the challenges the country faces. Today by
contrasting strategies of diverse nations and states to uncover which of them is most beneficial and depicts
endeavors made by India's legislature towards enhancing innovation for developing startup eco-system.

The Bangalore-based startup aspires to create a business

environment that does not require any financial
investment. On the Meesho platform, there are over two
million resellers. In addition, the company has more than
20,000 suppliers in more than 500 towns. Sellers can
earn money through Meesho by introducing a gross
margin into every transaction, and Meesho works on a
commission of about 10-15%.

Meesho was founded in 2015 by two IIT-Delhi graduates, Aatrey and Sanjeev Barnwal. The Meesho app is
an online reseller startup for individuals and small and medium businesses who sell products within their
network on social channels such as Facebook, WhatsApp, and Instagram. It also connects manufacturers to
resellers. Accessories, clothing, culinary utensils, cosmetics producers, and furniture are among the suppliers
who list their items on Meesho.

Using the social media sites mentioned, independent resellers can sell any product from these suppliers to
customers. Posting a photo on Instagram or writing a Facebook post is all it takes to sell an item. Meesho
items are dispatched to the buyer's home after the reseller and customer agree on the purchase. The
transaction can be completed securely and quickly using a debit/credit card or cash on delivery.

OBJECTIVES OF THE STUDY

1. To understand the problems faced by startups. 

2. To study the awareness about Startups in the light of recent changes announced by the Government.
3. To study the effect of startups on people.
 4. To explore the startups initiative to analyze the impact of startups on GDP, GNI, the balance of
payment, import, export, and foreign reserve.

LITERATURE REVIEW

Christopher A Pissarides (2001), in this paper, studied the role of a company's starts up costs on employee
performance. This paper is a highly theoretical one. The conclusion is that the factors that can explain the
differences in Labor Market performance are structural and should seek in the institutional structures of the
countries. 

In their paper, Omid Sharifi and Bentolhoda Karbalaei Hossain (2015) stated the various financial
challenges faced by Startups in India. It also depicts the difficulties faced by startups at the initial stage. The
significant findings are that a major leap in technology has led investors to raise the bar regarding how much
leg work entrepreneurs expect to do before pitching their companies. 

Arihant Jain "Startups Restoring the Indian Economy? - A Study On Impact Of Startups On The
Indian Economy" A Student's Journal Of Shri Ram College Of Commerce, Volume-2, Issue-1, 2017-
18
This paper gives the elemental points of interest to put the present startup's environment, which is ingenious.
Inside the Indian setting and feature a portion of the related difficulties confronting India today by
contrasting policies of various nations and states to discover which of t is most favorable and depicts
endeavors made by India's legislature towards innovation and startup ecosystem. The main aim of the
research paper is to establish a relationship between GDP and startups registered, comparing across the
states and countries and measuring the effectiveness of various schemes. The startup India program is a
significant step towards development since it addresses most of the critical difficulties in building an
effective n ecosystem. Even though the policy has been drafted, its success depends on its execution. The
zeal and zest of the younger generation are reflected in new policy reforms reflecting strong development
desires.

Meenakshi Bindal, Bhuwan Gupta, sweety Dubey "role of startups on the Indian economy"
international journal of engineering and management research, ISSN 9online): 2250-0758, ISSN
(print)- 2394-6962, volume-8, issue-5, October-2018.
The main objective is to analyze initiatives for startups in India, to know the problems faced by the startups,
to study the awareness about the startups, and to study the impact of startups on people. It is based on
secondary data. The government has a need to help startups promote themselves, not only in India but also
globally, as well as create policies that are startups friendly so that Indian startups get a significant boost and
they can further create better employment.

Hans Westlund "Economic Entrepreneurship, Startups and Their Effects on Local Development: The
Case of Sweden" ERSA conference papers era 11327, European Regional Science Association, 2011
Entrepreneurship (measured as the number of startups) and economic growth are largely correlated in
empirical entrepreneurship literature. The mechanisms through which entrepreneurship exerts its positive
effect remain unclear. Since startups can result in the closure of less efficient companies, the net effects of
startups can be harmful, at least in the short run. Based on the assumption that economic entrepreneurship in
the form of startups creates unobserved supply-side effects on the firm level (Fritsch & Mueller, 2004) and
entrepreneurial social capital on the community level (Westlund & Bolton, 2003), this paper studies the
connections between startups and local development at the municipal level in Sweden between 2000 and
2008. In order to study the impact of entrepreneurship on employment and population growth, we use a
unique database that includes data on startups divided into six branches. Municipalities, types of
municipalities, and growth rates are all analyzed.

Prime Minister Narendra Modi (2016) has stated that Startup India is a revolutionary scheme to assist
people who wish to create their businesses. These people have ideas and capacities, so they will receive
support from the government so they can implement their ideas and grow. In the long run, India will be a
stronger nation and an economic power thanks to the success of this scheme.

Grant Thornton (2016) define the startup business as an organization that is an entrepreneurial venture/a
partnership or a temporary business organization that engages in developing, producing, or distributing new
processes or products/services.

Institute for Business Value (IBV) (2018), India is booming with

young entrepreneurs and start-ups. Even so, more than 90 percent of start-ups in the country fail due to a
lack of innovation, a lack of skilled workers, and insufficient funding, the main causes of failure.
 
Nipun Mehrotra (2018). With the Indian start-up community ranking third worldwide, the country has
created new job opportunities and attracted capital investment. In our opinion, start-ups should focus on
societal issues such as transportation, healthcare, sanitation, education, and alternate energy management,
which would help deal with the issues faced by India and the world. In order to achieve these goals, deep
technology, and global-scale products are required. 
 RESEARCH METHODOLOGY & QUESTIONNAIRE

Measurability: Measuring the impact of startups on the economy by measuring the contribution of startups to
the entire economy on the one hand and measuring the economic growth indicators like GDP, Per-capita
income on the other and drawing a co-relation between both.

Comparing across states and countries: Comparing the policies of various states in the country and
comparing the country as a whole with other economies of the world.

Measuring the effectiveness of various schemes launched by the government. RTIs have been filed to get
accurate information from the Ministry of Commerce and Industry.

Research Design

Data has been collected from secondary sources. The nature of the data collected is quantitative. The
collected data has been analyzed to find any significant relationship between them. Hence, the research
design used in this research report is experimental. The positivist approach has been implemented to test the
prior theory that new start-ups significantly impact GDP growth. The time duration used in this research is
cross-sectional, where data has been collected once.

Sample Collection

In this research, data has been collected for ten years, from 2012 to 2021. Different secondary sources have
been used to collect the data for several start-ups and the GDP growth rate. For instance, data for several
start-ups have been collected from: (Crunchbase, 2022; Crunchbase, 2022; Crunchbase, 2022; Soni, 2021;
Statista, 2022 and Statista, 2022). On the other hand, data for Indian GDP growth has been collected from a
single source (Data World Bank, 2022).

Data Analysis Technique

The data has been analyzed by applying descriptive and inferential statistical techniques. In the descriptive
technique, minimum, maximum, mean, median, standard deviation, skewness, and kurtosis were used to
describe the data. On the other hand, in inferential statistics, two different techniques: correlation and
regression tools, have been used. The correlation defines the directional relationship between two variables,
while regression finds the significant relationship between two variables. The data has been analyzed
through MS Excel, where data feature has been used to calculate the collected data's regression, correlation,
and descriptive statistics.

LIMITATIONS OF THE STUDY

Issues and Challenges of Startups 

Some of the significant issues and challenges are discussed below: 
1. Financial resources 
Availability of finance is critical for startups, and getting sufficient amounts is always a problem. Many
funding options are available, including family, friends, loans, grants, venture capitalists, crowdfunding,
angel funding, etc. The requirements increase as the business progresses. Scaling the business requires a
timely injection of capital. Cash management is critical to startup success (Skok, 2016; Pandita, 2017). A
recent report paints a bleak picture, with 85% of new ventures reportedly underfunded, indicating potential
failure (Iwasiuk, 2016).

2. Supporting infrastructure 
Several support mechanisms play an essential role in the life cycle of startups, including incubators, business
development centers, science and technology parks, etc. Lack of access to such support mechanisms
increases the risk of default.

3. Team members 
Startups typically start with a team of trusted members with complementary skills. As a rule, each member
specializes in a specific area of activity. Assembling a good team is the first essential requirement; the lack
of one could sometimes interrupt the trunk process (Skok, 2016).

4. Revenue generation 
Several startups fail due to poor revenue generation as the company grows. As operations increase, expenses
increase while revenue falls, forcing startups to focus on the funding aspect, and diluting the focus on
business fundamentals. Therefore, generating revenue is crucial and guarantees efficient management of the
burn rate, which is commonly used as the rate at which startups spend money in the early stages. The
challenge is not generating enough capital but growing and sustaining growth.

5. Creating awareness in markets 

Startups fail due to a lack of attention to restrictions in the markets. The environment for a startup is usually
more complex than for an established company due to the uniqueness of the product. The situation is more
difficult with a new product since the startup has to build everything from scratch.

6. Tenacity of founders 
Startup founders have to be tough when the going gets tough. Starting a business is full of delays, setbacks,
and problems without proper solutions. The entrepreneur must be persistent and persuasive and never give
up until he/she achieves the desired results.

7. Exceed customer expectations 

Identifying the market need, existing trends, etc., is the next most important challenge. As a startup,
innovation is essential since product offerings must be fine-tuned to meet market demands (Skok, 2016). A
solid domain knowledge is also necessary for the entrepreneur to develop beneficial strategies for countering
competition. As new technologies emerge, the challenge to provide more than an earlier innovation is
relevant.

8. Regulations 
Starting a business requires several permissions from government agencies. Although there is a perceptible
change, registering a company is still challenging. Regulations about labor laws, intellectual property rights,
dispute resolution, etc., are rigorous in India. 

9. Lack of a good branding strategy 

The absence of an effective branding strategy is another issue that prevents startups from flourishing faster.
The Times Network's Business Head-Branded Content, Hemant Arora, believes branding is paramount since
it gives a brand identity and occupies a place in the consumer's mind (Choudhury, 2015). 

10. Lack of mentorship

The lack of proper guidance and mentoring is one of the biggest problems in the Indian startup ecosystem
(Choudhury, 2015). Most startups have brilliant ideas and products but need more industry, business, and
market experience to bring the products to market. It is a proven example that a brilliant idea only works if
implemented promptly (Mittal, 2014). The lack of proper mentoring/guidance is the biggest challenge that
could end a potentially good idea.

DATA INTERPRETATION (ANALYSIS)

Direct Impact of startups in developing Indian economy
Creative ideas create more work.
A startup that simply creates solutions will be in high demand, so every startup will try to be creative.
Everyone thinks differently, so the solutions that different startups come up with for the same problem also
differ. Also, the smartest and most unique methods will continue to be promoted, leading to more
outsourcing to India.
More job vacancies
The main problem India faces is unemployment. The jobs created are mostly from startups rather than large
corporations. Since startups are free from economic downturns and strains, they can manage more
employees.
The explosion of talent from professionals and entrepreneurs for better ROI
India is full of talented professionals but they need an opportunity to highlight that. Startups are looking for
talented professionals who can provide them with a platform to showcase their unique talents and they are
always encouraged by MNCs which makes them spend more money in India.
New technology to cut production costs
Technological advancements will lead to significant operations improvements and lower business costs. 
Startups will discover or develop new technologies in India that will ease the workload. As new technologies
are accepted and demand increases, many multinationals will be interested in investing in India. Besides this,
many advancements in the computer industry and advances in telecommunications have increased
employment opportunities and enhanced economic growth in recent years.
More competition gives more confidence in the job.
There is always a need for good healthy competition to improve and update the quality of a product or
service. When the competition increases, companies study the customer's behavior and launch new products,
which is user demand. Due to this, the demand for the product and sales increase, directly benefiting the
Indian economy.
More outsourcing of services
Many MNCs are now outsourcing their work to smaller companies as they can concentrate on their core
work. When these startup companies prove their talent, many other companies also show interest in our
country to outsource their work so that India can get expertise in that field. For example, India is now
becoming the VFX hub for the world. Many big companies are outsourcing their work to India, which
intensely impacts the Indian economy.
More flow of foreign money
When more outsourcing comes to India, more foreign money is being circulated and distributed in India,
which is good for the growth of the Indian economy.
High demand in the market
Demand increases when you prove your product or service's quality and value for money. It leads to an
increase in startup revenue, which reflects the Indian economy positively.
Can reduce imports
When our startups can handle the need for a product or service, we can reduce the import of that
product/service, which decreases the flow of money to another country and makes that money flow into the
Indian market, which is good for the Indian economy.
Can increase exports
When we have more startups, then we can produce more products. Also, we can start exporting to other
countries, increasing foreign funds flow into Indian markets.
New investments
Many multinational companies are closely watching the progress of Indian startups, and they are willing to
invest the money which creates wealth for the startups and helps increase production, which is good for the
Indian economy.
Not only this, if many startups support their businesses, they always prefer to start their company in India,
increasing job opportunities.

FINDINGS

RECOMMENDATION (SUGGESTIONS)

CONCLUSIONS

BIBLIOGRAPHY (REFERENCES)

QUESTIONNAIRE (IF ANY)