Startups: The India Opportunity

The Indian Economy

The future belongs to India. World Bank projects the Indian economy to grow to $30 Tn by 2050. How will India achieve this number? Well, let’s first understand what factors a country’s economy, or the Gross Domestic Product (GDP) of a nation depends upon.

1. Consumption – This represents the total amount of goods and services purchased by the citizens of a country
2. Investments – This is the total capital expenditure done by the private sector companies of a nation
3. Government expenditure – This is the total capital spent by the government on goods and services like defense, infrastructure, education, etc
4. Net exports – This is the portion of how much surplus exports have been done by a nation as compared to the imports. Simply stating this is exports-imports

In order for India to achieve this economic growth – businesses, especially new emerging businesses are going to have to contribute hugely.

Status of the Indian startup ecosystem

India had 87000 startups as of December 2022. It is the third largest ecosystem after the USA and China. 

If we consider the 108 unicorns ($1Bn+ valuation) as a very high-level representation of startups, we can roughly see the domain-wise distribution as follows:

E-commerce: 23
Fintech: 22
Enterprise: 20
Consumer services: 9
Media & Entertainment: 7
Rest: 25

The top 5 domains contribute to 75% of the startups.

Opportunities 

Let’s get back to the economic discussion. Following is the sector-wise contribution to the Indian economy as of 2021:

Tertiary (Services) – 54% 
Secondary (Manufacturing) – 23%  
Primary (Agriculture) – 20% 

The tertiary sector includes services like banking, information technology, software, hospitality, etc. In the secondary sector, we have manufacturing, mining, and construction industries. The primary sector consists of agriculture and related fields.

So far so good. But when we see the sector-wise employment, we start to see the difference.

Sector-wise employment

Tertiary – 27%
Secondary – 24%
Primary – 49%

The primary sector, where 49% workforce is employed in India contributes to 20% economy. On the counterpart, 27% workforce from the tertiary sector contributed to 54% economy. Simply stated, every person working in services contributes five times the money than the person working in the primary sector.

Tertiary occupations or services are mostly intellectual work and do not require heavy raw materials and machinery. It adds tremendous value and works on huge profit margins compared to its primary and secondary counterparts. Hence, in spite of less workforce, it contributes more than half to the economy.

According to me, the huge opportunity in India lies in the businesses disrupting this economic equation. As more and more workforce moves towards advanced sectors of secondary and, especially, tertiary occupations, more value adds to the economy. If we today see most of the large economies, it is the tertiary sector that contributes hugely. India has a large population and if this population becomes an asset, it will become an unstoppable growth engine. I feel businesses working on this theme will be the winners. 

Rooted domains like education, healthcare, agriculture, and clean energy have immense potential to grow in India.