Highlighting India’s achievements in the field of innovations and start-ups in the Lower House of Parliament, Prime Minister Narendra Modi recently said the country has witnessed the origin of 90,000 start-ups in the past nine years, making it the third-largest start-up economy globally.

In India, as per an estimate, the total value of start-up company is more than $368 billion (more than three lakh crore rupees); it is also home to more than 110 unicorns with a combined worth of approximately $350 billion, surpassing the 100-unicorn mark and overtaking the UK to claim the third spot after the US (661 unicorns) and China (312 unicorns).

“We have about over a million people directly engaged by them (start-ups). Must be many million more who are indirectly involved in the entire start-up ecosystem,” Minister of Commerce and Industry Piyush Goyal said while addressing a function in New Delhi on October 30, 2022.

Tier 2 and 3 cities becoming centres of growth for start-ups and unicorns

Abundance of talent, lower cost of living, and government incentives are making India’s Tier 2 and 3 cities attractive for the growth of start-ups and unicorns. These cities are also gaining interest from investors due to their potential for growth and the opportunity to reach untapped markets. Besides, the government's investment in digital infrastructure and programs such as Digital India and Make in India create a supportive environment for start-ups to flourish in these cities.

Union Minister of State for Skill Development, Rajeev Chandrasekhar recently said the government will be directing its investments towards smaller towns to establish the next wave of 200,000 start-ups. Currently, 95% of the 100 unicorns are in major cities such as Bengaluru, Hyderabad, Gurugram, Mumbai, and Chennai.

According to a 2019 Linkedin report, Chennai was the second most popular destination for tech talent, with 38% of new hires coming from the city, while Bengaluru attracted 44% of new tech talent and Silicon Valley 31%. Pune and Hyderabad each drew in 43% of new tech talent.

Pune: known for its thriving start-up scene, with high-value companies like Druva, Rolocule, Mobikon, and Letsintern leading the pack. Top start-up sectors in Pune are e-commerce, ERP, education, and marketing and advertising. Pune also has 350 corporate innovation centres, and eight research and development-focused universities, said iSPIRT Foundation, a technology think-tank in its study.

Ahmedabad: The Centre for Innovation Incubation and Entrepreneurship at IIM-Ahmedabad has nurtured over 100 start-ups in areas such as cleantech, social, and IT. The National Design Business Incubator in the city focuses on incubating design-related start-ups. Ahmedabad has seen successful companies like Infibeam and angel groups like Gujarat Angels and Infuse Ventures located at IIM-Ahmedabad. The city's favourable business and industry infrastructure, backed by the government, makes it a good environment for start-ups.

Kochi: Start-up Village, a not-for-profit business incubator established in Kochi in 2012, has significantly impacted the state's business and entrepreneurial sector. The incubator has supported 679 start-ups and 249 student start-ups. Kochi is also seeing a rise in software product start-ups. The city recently signed a Memorandum of Understanding with Menlo Park, California, to facilitate the exchange of technology and talent between the two regions, with mentorship provided by both sides.

Jaipur and Chandigarh: They are emerging as major start-up hubs. Chandigarh boasts of a well-planned infrastructure and skilled workforce, while Jaipur is home to numerous SME clusters in the handicrafts sector. Companies like Girnar Software and CarDekho, the auto classifieds portal, have emerged from Jaipur, with Razorpay, an online payments solution start-up, being part of Y Combinator's W15 batch and mentored by Jaipur-based incubator Start-up Oasis.

Factors behind Tier 2 and 3 cities becoming start-up hubs

Improved infrastructural support, high-speed internet, favourable working conditions, better transport facilities and accessibility of a large pool of talent have contributed to growth of start-up in Tier 2 and 3 cities. In the recent past, India’s small cities have witnessed a shift in population demographics and a rise in affluence and consumer spending. This change is driven by government policies, improved infrastructure, and a shift in consumer attitudes. The youth in these cities, with a literacy rate of over 90%, are taking advantage of digitization and smartphones to become pioneers in the start-up industry.

Besides, Tier 2 cities provide affordable rent and lower living costs than metropolitan areas, making them a suitable environment for large-scale operations and a better quality of life.

Measures adopted for start-up growth

India is taking various measures to support the growth and development of start-up companies. In the budget for 2022-2023, Finance Minister, Nirmala Sitharaman, allocated Rs 283.5 crore for the Start-up India Seed Fund Scheme, which was higher than the Revised Estimates of Rs 100 crore in the previous budget. Earlier, in the 2022 budget, the government had allocated Rs 1000 crore for the Fund of Funds for start-ups

In January, 2016, to build a strong ecosystem to nurture innovation and empower start-ups across the country, Start-up India Action Plan was launched. This action plan envisaged several incubation centres, easier patent filing, tax exemptions, ease of setting up business, low-interest loans, training programs, and priority in public procurement.

In addition, various schemes have been launched for the promotion of start-ups and they include ASPIRE, Pradhan Mantri Mudra Yojana, SIP-EIT, Multiplier Grants Scheme, Credit Guarantee Fund Trust for Micro and Small Enterprises, Single Point Registration Scheme, and the Zero Defect Zero Effect scheme. These schemes promote entrepreneurship and innovation, especially in rural areas, and support existing start-ups and businesses. Result is before the world: India is heading towards becoming start-up capital, where Flipkart, BYJU, Nykaa, and Swiggy have already registered themselves as “decacorns.”

***The author regularly writes articles on financial issues; views expressed are her own