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The Indian Startup Ecosystem and Policy Implication Economic cooperation, Industrial policy

Author Hyoungmin Han, Jeong Gon Kim, Doyeon Kim, Sunghee Lee, and Jong Hun Pek Series 20-10 Language Korean Date 2020.12.30

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   A startup refers to a company with a short period of experience, in many cases with ideas and innovative technologies. Recently, startups are leading the 4th industrial revolution and technological innovation and contributing to job creation and industrial productivity growth, and as a result their economic importance continues to increase. In particular, India is emerging as a startup powerhouse based on its fast-growing economy and relatively cost-efficient excellent talent pool. Also, global investment into the Indian startup market is increasing. While the number of Korean companies entering the Indian startup market is increasing, only a few have made stable inroads into the market.
   Based on quantitative data, literature analysis, corporate case analysis, online surveys, and in-depth interviews, this study objectively evaluates the Indian startup ecosystem and draws policy implications to increase the accessibility of the Indian market to Korean startups. The startup ecosystem is composed of many elements, such as the founder(s), financial environment, knowledge-related infrastructure, and government system. This report analyzes the Indian start-up ecosystem at the national and state level. Additionally, a survey was conducted on Korean start-ups in the Indian market to identify the policy demand of firms. The main contents of each chapter can be summarized as follows. 
   Chapter 2 analyzes the current status of startups in three East Asian countries, (Korea, China, and Japan), along with the United States, Britain, and India. Quantitative data shows that the Indian startup market has rapid growth compared to other countries in terms of quantity such as the number of startups and investment volume. However, India's startup market is relatively focused on Indian founders, and investment is concentrated on a small number of companies with high growth potential. Also, the proportion of individual investment is relatively high compared to other countries.
   Chapter 3 illustrates the Indian startup ecosystem using quantitative data and literature review, focusing on components such as entrepreneurship, investment environment, knowledge-related infrastructure and human capital, and government policy. As a result of the analysis, India shows a favorable perception of entrepreneurship and an active entrepreneurial atmosphere. It was found that this is based on raising awareness through the growth of the startup ecosystem and their success cases, the multi-cultural characteristics of India, and the spirit of jugaad. The investment ecosystem for Indian startups has been continuously developed since the dot-com boom in the 2000s and funding systems recently introduced by the government, such as the “Fund of Funds for Start-ups” and “Mudra Loan,” have contributed to the rise in funding from domestic and overseas sources. In terms of knowledge-related infrastructure and human capital, India has developed a world-class knowledge infrastructure and excellent manpower pool based on the active R&D and incubation activities of higher education institutions and multinational companies in India. Meanwhile, the Indian government has laid the foundation for startup growth by implementing multifaceted startup promotion policies for many years, such as simplification of administrative procedures for startups, financial support and tax benefits, industry-academia cooperation and incubation support.
   In Chapter 4, we analyze the status and characteristics of startup ecosystems in Bengaluru, Delhi and Mumbai, where startups are the most active in India. Based on the Crunchbase data, this chapter also examines foreign entrepreneurs opening their start-ups in India, the proportion of startups by industry sector, and the investment environment. Each of the local governments to which the three cities belong to are promoting policies such as establishment of a startup-dedicated agency, deregulation, and infrastructure support to foster startups. Meanwhile, we also confirm that startup ecosystems with distinctive characteristics were formed according to major industries and local government policies for each city. Bengaluru, referred to as “India's Silicon Valley,” is the city with the most active startup ecosystem, with abundant human capital centered on a rich pool of engineering talents and startup infrastructure such as Tech Parks. Delhi, which includes the capital of India, offers high access to major institutions, a well-equipped business environment, and a population of more than 16 million, showing the rapid growth of e-commerce startups. Mumbai, one of India's economic centers, has built a high-level startup funding network based on the development of commerce and finance. In addition, Mumbai is the first state in India to announce its Fintech promotion policy and support related startups.
   Chapter 5 provides an analysis of an online survey and in-depth interview conducted to gather the experience of using the Indian startup ecosystem and evaluation from Korean startups that have entered India and to identify the demand for policy support from the Korean government. Among the respondents of startups operating a local subsidiary in India, there were cases where these subsidiaries were co-founded with local partners, or this approach was being considered, to allow more customized local business activities, but many companies replied they prefer to found their startups independently due to reliability issues. Most of the capital raising came from domestic funding sources, not from India. Many respondents lacked sufficient information on financial support provided by the Indian government and hence had little knowledge as to whether startups founded by foreigners are eligible for these supports and services from the Indian government. Moreover, there are few cases of networking activities with Indian universities, multinational companies, and Indian government-run startup support agencies or accelerators. Respondents evaluated that the competitiveness of human resources and knowledge-related infrastructure in the Indian startup ecosystem is relatively high, but the financing and government support are rated as less competitive. The respondents of the survey pointed out the local regulatory and institutional barriers and limited local networks as difficulties in entering the Indian market. The lack of reliable information on local partner companies and insufficient funding were also identified as obstacles. Based on the survey results, government policy support is needed for overseas marketability verification consulting, overseas marketing expenses/education, participation in overseas accelerating programs, working and residential spaces, and incubation opportunities from global companies, to accelerate the entry of Korean startups into India, 
   In Chapter 6 we present policy directions and specific policy tasks to support domestic startups entering India based on the research results and analyses. First of all, it is necessary to continue promoting the New Southern Policy and Korea-India digital cooperation and create an environment amenable to startups advancing into the market. At the macro-level, preemptive efforts to reinforce digital cooperation between the two countries are needed. To this end, this study suggests measures such as upgrading the New Southern Digital International Forum into a regular event and conducting joint research on a Korea-India startup policy roadmap. In addition, taking into account that the entry of Korean startups into India is stagnating due to lack of interest and information on the Indian market, the establishment of the Korea-India Knowledge and Culture Exchange Center and annual Korea-India startup events would increase exchange opportunities between the two countries. In addition, reflecting the difficulties and policy demands of domestic startups entering India, this study recommends practical policy support measures such as operating an Indian business information desk, establishing an investment information network, preparing a pool of reliable and talented local personnel and partners, strengthening expertise in related organizations, and establishing a joint fund for startups.

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