India’s Startup Future Needs a Deep-Tech Direction

Editorial Apr 20, 2025 Add to Reading List

India’s booming startup ecosystem has become a global force, but to sustain this momentum, the country must pivot towards deep-tech innovation. While short-term ventures have played a crucial role in India’s rise, long-term global competitiveness and economic resilience hinge on embracing high-impact, research-driven sectors.

Prelims Corner:

Key Terms: IPO, Startup India, SISFS, CGSS, AIFs, WEP, AIM
Important Acts: Motor Vehicles Act, Digital Personal Data Protection Act, 2024
Key Issues: Angel Tax, IPR, Government Funding and Support Schemes

Where Does India Stand Today?

India now ranks as the third-largest startup ecosystem globally, boasting over 1.57 lakh DPIIT-registered startups. Fuelled by government backing, favorable policy frameworks, and investor enthusiasm, Indian startups are flourishing across various sectors.

Capital Flow: In Q1 2025, startups secured $2.5 billion in funding — an 8.7% year-on-year rise.
IPO Momentum: 23 startups are gearing up for public listings this year, reflecting robust investor faith.
Unicorn Boom: India has crossed the 100-unicorn mark, spanning fintech, edtech, e-commerce, and health-tech.
Regional Spread: A notable 51% of startups originate from Tier-2 and Tier-3 cities, focusing on grassroots challenges in health, agriculture, and education.

Startup Classifications (by Valuation)

Stage	Valuation	Description
Seed Stage	Less than $10 million	Early-stage ventures focused on product development; typically pre-revenue.
Minicorns	$10M – < $100M	Startups gaining traction with early signs of growth and market validation.
Soonicorns	$100M – < $1B	Rapidly scaling companies on the verge of reaching unicorn status.
Unicorns	$1 billion or more	Market leaders with strong brand presence and billion-dollar valuations.
Decacorns	$10 billion or more	Industry-shaping giants with global reach and significant market influence.

Government’s Role in Empowering Startups

India's vibrant startup scene is underpinned by a web of enabling schemes and initiatives:

Startup India Mission (2016): Streamlined procedures, tax breaks, and access to funding have propelled over 1.57 lakh startups.
Fund of Funds for Startups (FFS): With ₹10,000 crore allocated, the fund has mobilized over ₹21,000 crore, supporting more than 1,100 startups.
Seed Fund Scheme (SISFS): Since 2021, this program has disbursed ₹467.75 crore, nurturing over 2,600 startups through the early innovation lifecycle.
Credit Guarantee Scheme (CGSS): Helps secure loans without collateral; ₹604.16 crore backed for 209 startups, including strong support for women-led firms.
Women Entrepreneurs: Over 73,000 startups have at least one woman founder. AIFs have invested ₹3,107 crore into women-led ventures.
Sector-Specific Boost: Tailored policies in agriculture, biotech, and renewables are driving deep-tech advancement.
Capacity Builders: WEP and AIM are nurturing future innovators via mentoring, funding, and over 10,000 Atal Tinkering Labs.
State-Level Competition: DPIIT’s startup ranking initiative is fostering competitive, startup-friendly policies among Indian states.

Barriers to Growth

Despite strong foundations, Indian startups face systemic roadblocks:

Funding Gaps: Tier-2 and Tier-3 startups saw investment dip sharply from ₹2,202 crore in July 2024 to just ₹202 crore by November.
Policy Ambiguities: Conflicting interpretations of laws, like the Motor Vehicles Act affecting ride-sharing apps, hamper clarity.
Data Compliance Pressure: The Digital Personal Data Protection Act (2024), though crucial, adds regulatory load on lean startups.
Scaling Troubles: Nearly 90% of startups shut down within five years due to market entry issues and resource inefficiencies.
Sector Saturation: Highly competitive sectors like edtech are struggling with market overcrowding and unsustainable business models.
Innovation Exodus: Many valuable innovations are bought by foreign firms at low valuations, contributing to intellectual capital drain.
Unsustainable Models: A heavy focus on quick returns undermines long-term viability.
Infrastructure Deficits: Weak digital and physical infrastructure in smaller cities holds back expansion potential.

Charting a New Innovation Roadmap

To emerge as a genuine innovation superpower, India needs to reimagine its startup strategy:

Double Down on Deep-Tech: Prioritize AI, robotics, semiconductors, and space tech. Encourage risk capital for early R&D.
Rethink Policy Frameworks: Eliminate friction points like angel tax, offer R&D tax breaks, and refine safe harbor rules.
Develop Innovation Clusters: Build smart infrastructure in smaller cities, offer affordable workspaces, and promote regional incubators.
Safeguard IP: Fast-track patent grants and boost awareness to protect homegrown ideas from undervalued acquisitions.
Leverage Academia: Partnering with universities can bridge research and entrepreneurship, pushing next-gen deep-tech breakthroughs.
Local Problem-Solving: Solutions in agri-tech, health, and education from local startups can promote inclusive growth.
Public Sector Collaboration: Introduce quotas for startups in government procurement, opening consistent revenue avenues.

✅Conclusion

India’s entrepreneurial engine is revving — but to stay in the race, it must shift into a higher gear powered by deep-tech. With strategic reforms, inclusive policies, and a focus on breakthrough innovation, India can shape a globally competitive, self-sustaining startup ecosystem that drives economic growth for decades to come.