India has witnessed a positive trend of rising numbers of start-ups in recent years. While analyzing the factors responsible for the same, highlight the challenges that remain. Also, suggest some remedial measures.
A Start up is defined as a newly incorporated business entity (less than five years old) which operates in a niche/unique market segment, often with the use of technology.
The Ministry of corporate affairs has reported a four-fold increase in the number of registered start-ups in recent years.
Factors responsible:
- Proliferation of high speed low-cost internet connectivity.
- Reduction in cost of mobile handsets – wider market reach in tier 2 and tier 3 cities for start-ups.
- Rising disposable incomes – allowing greater leisure spending (e.g. food ordering apps, entertainment apps, etc).
- Preference for convenience among consumers (e.g. cab aggregators, household service apps, etc).
- Large pool of IT trained human resources engaging in development.
Challenges in existing ecosystem:
- Regulatory compliance burden (e.g. labour, taxation, permissions, etc).
- Data storage threats – European GDPR mandates stringent data storage norms.
- Taxation issues – recent concerns about Angel tax.
- Rapid development in technology is unable to keep up.
- Cut-throat competition from foreign start-ups.
Measures to resolve:
- Simplifying regulatory requirements, permissions.
- Higher capital access through initiatives like startup India.
- Provision of incubators in colleges to have early age start-ups.
- Development of robust data protection policy.
Start-ups have the potential to create high value and employment in the current economic scenario. It should be ensured that their growth is encouraged.
Topics: GS-III: Changes in Industrial Policy and Their Effects On Industrial Growth