Its playbook could help other G20 member nations lacking the scale or number of start-ups required to reach the 1 per cent GDP target within the next six years
A key announcement at the recently concluded G20 Summit, held under India's presidency, was the launch of the Start-up20 engagement group. An official declaration stated, "We recognise that Start-ups and micro, small and medium enterprises (MSMEs) are natural engines of growth. They are key to socio-economic transformation by driving innovation and creating employment," the declaration said.
Brazil, which takes over the G20 presidency from India, will work on implementing the recommendations over the next few years. One significant proposal by this group was that every G20 nation should invest 1 per cent of its gross domestic product (GDP) into start-ups by 2030.
This ambitious target presents both an opportunity and a significant challenge.
Countries currently occupying the top four or five positions worldwide with well-established ecosystems already have established incubator programs, government grants, and other essential infrastructure. This will make it relatively more accessible for them to meet this target.
Conversely, countries where the Start-up ecosystem is still in its early stages might struggle to achieve this goal. Take India as an example: in 2016, when the Start-up India program was initiated, the country had around 450 Start-ups. Today, that number has surged to over 100,000.
According to Nakul Saxena, president of LetsVenture, an early-stage investment platform, this is a remarkable accomplishment within just seven years. He attributes this to India's start-up policies and the collaborative efforts of government agencies like the Department of Science and Technology (DST), which established the Biotechnology Industry Research Assistance Council (BIRAC), and their support in nurturing the healthcare ecosystem in the country.
India has already removed other constraints from the start-up ecosystem by simplifying IPO regulations, easing capital controls, bringing efficiency to the capital gains tax regime, and setting up GIFT IFSC for global investors to domicile their India focus. Hence, the country's Start-up ecosystem certainly has the foundations to ramp up scale and absorb additional investments from here.
"Additionally, initiatives such as those led by NITI Aayog have promoted innovation at both the school and incubation levels, resulting in widespread recognition of start-ups across India. Consequently, the goal of contributing 1 per cent of GDP by 2030 appears attainable in India due to these factors," Saxena claimed.
The Indian Private Equity Venture Capital (PE-VC) ecosystem received over $25 billion of external investments in H1FY2023, representing approximately 0.80% of the country's GDP. In 2022, this was $61 billion, which amounted to 2% of the GDP in the preceding year.
Moreover, such investments may not necessarily be in the form of VC; they can take different forms, such as debt financing, infrastructure support, and government procurement.
Anirudh Damani, managing partner of Artha Venture Fund, therefore, thinks it is feasible for India to attain the investment targets, bearing in mind that the country's investors like family offices, high-net-worth individuals, funds, and corporations also invest heavily in the country's start-up ecosystem.
"However, it is crucial to acknowledge the challenges that need to be addressed, such as outdated banking systems and stringent regulations. These obstacles must be resolved expeditiously to support the demands of Indian entrepreneurs and consumers," Damani added.
Some G20 nations may lack the scale or number of start-ups required to reach the 1% GDP target within the next six years, as decreed by the Start-up20 engagement group. Economic capacity and development level variations among member countries represent a potential hurdle, especially for those with smaller economic profiles.
Moreover, Sumit Manon, co-founder and CEO of advisory services firm The Response Company, noted that ensuring the efficient allocation of these funds and mitigating the risk of corruption or mismanagement may present further difficulties.
To surmount these obstacles, member nations may focus on bolstering their entrepreneurial ecosystems, facilitating access to funding and mentorship, and crafting entrepreneur-friendly regulations.
Implementing the group's recommendations could cause many challenges to surface, including differing economic priorities and policy disparities among the participating nations. India, particularly, faces the task of striking a balance by ensuring regulatory ease to attract investments, addressing concerns such as taxation, and offering incentives to investors.
"Sharing expertise and best practices across G20 countries could also aid in addressing common challenges. Despite potential impediments, diligent efforts and sound policies can make implementing this recommendation feasible," Manon stated.
To overcome these obstacles, countries can facilitate international collaborations, standardise investment regulations, and establish knowledge-sharing platforms. For instance, India can streamline its regulatory framework, boost investor confidence, and maintain support for innovative start-ups through initiatives like 'Start-up India'.
By fostering collective commitment and cooperation, Anirudh Garg, partner and head of research at Invasset, says that the recommendation has the potential to come to fruition, propelling start-ups to serve as global catalysts for innovation, economic advancement, job creation, and the fortification of the worldwide ecosystem.
"The core mission of the Start-up20 Engagement Group, operating under India's G20 Presidency, is to streamline regulatory processes and foster seamless cross-border collaborations, thereby fortifying the Start-up ecosystem. By providing a platform for start-ups, investors, and governments to share insights and harmonise regulatory definitions, it offers practical solutions to regulatory challenges," Garg claimed.
This initiative not only helps start-ups navigate international markets with ease but also attracts foreign investments. Start-up20's commitment to inclusivity and sustainability further underlines its role in supporting the sector. As it aligns start-ups with global priorities, it holds the potential to transform the start-up landscape, catalysing economic growth and enabling founders to drive innovative solutions to global challenges.
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