International Journal of Financial Management and Economics 2019; 2(1): 44-48

P-ISSN: 2617-9210
E-ISSN: 2617-9229
IJFME 2019; 2(1): 44-48 A study on issues and challenges of startups in India
Received: 21-11-2018
Accepted: 23-12-2018
Dr. G Suresh Babu and Dr. K Sridevi
Dr. G Suresh Babu
Associate Professor, of
Commerce Govt. Degree & PG Abstract
College, Puttur, Chittoor Startup India is a Government of India flagship initiative to build startups and nurture innovation.
Andhra Pradesh, India Through this initiative, the Government plans to empower startup ventures to boost entrepreneurship,
economic growth and employment across India. India’s startup eco-system has become a talking point
Dr. K Sridevi for the entire world. With hundreds of innovative youngsters choosing to pursue the path of
MA, Ph. D Assistant Professor, entrepreneurship instead of joining the multinational corporations and government ventures, the
of English Govt. Degree & PG business world has witnessed an explosion of ground-breaking startups providing solutions to the real
College, Puttur, Chittoor, problems at a mass level in the past years.
Andhra Pradesh, India The paper discusses few issues and challenges that an Indian startup has to face and the opportunities
that the country can provide in the current eco-system.

Keywords: Innovation, economic growth, entrepreneurship, eco-system

Introduction
A startup venture could be defined as, a new business that is in the initial stages of operation,
beginning to grow and is typically financed by an individual or small group of individuals. It
is a young entrepreneurial, scalable business model built on technology and innovation
wherein the founders develop a product or service for which they foresee demand through
disruption of existing or by creating entirely new markets. Startups are nothing but an idea
that manifests into a commercial undertaking.

Why Startup India

Startup India is about creating prosperity in India. Many enterprising people who dream of
starting their own business lack the resources to do so. As a result, their ideas, talent and
capabilities remain untapped – and the country loses out on wealth creation, economic
growth and employment.
Startup India will help boost entrepreneurship and economic development – by ensuring that
people who have the potential to innovate and start their own business are encouraged – with
proactive support and incentives at multiple levels.
Indian government is serious in promoting entrepreneurship at the startup level and has taken
a number of initiatives to ensure appropriate support. In this aspect it is relevant to mention
‘Make in India’ campaign introduced in September ’14 to attract foreign investments and
encourage domestic companies to participate in the manufacturing sector. The government
Correspondence increased the foreign direct investment (FDI) limits for most of the sectors and strengthened
Dr. G Suresh Babu intellectual property rights (IPRs) protection to instill confidence in the startups.
Associate Professor, of
Commerce Govt. Degree & PG
In order to make the country as number one destination for startups, Government of India
College, Puttur, Chittoor (GoI) has introduced a new campaign called ‘Standup India’ in 2015 aimed at promoting
Andhra Pradesh, India entrepreneurship among women and to help startups with bank funding.

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Another commendable and far reaching initiative is ‘Digital partnership or a temporary business organization engages in
India’ introduced in 2015 to ensure government services are development, production or distribution of new
made available to every citizen through online platform that products/services or processes.
aims to connect rural areas by developing their digital Institute for Business Value (IBV) (2018) [3], India is
infrastructure which translates into a huge business booming with young entrepreneurs and start-ups but more
opportunity for startups. than 90 per cent of start-ups in the country are failed
because of, lack of innovation, non-availability of skilled
Startup India Action Plan workforce and insufficient funding are the main reasons for
The Government’s Action Plan will help accelerate the the high rate of failure.
growth of startups throughout India, across all important Nipun Mehrotra (2018) [4], “The Indian start-up community,
sectors – in Tier 1, 2 and 3 cities, including semi-urban and ranked third globally in terms of number of start-ups, has
rural areas – and includes promoting entrepreneurship been creating new job opportunities and attracting capital
among SCs/STs and women communities. investment. We believe that start-ups need to focus on
The Startup India Action Plan was unveiled by Prime societal problems, including healthcare, sanitation,
Minister Narendra Modi on 16th January, 2016 to highlight education, transportation, alternate energy management and
several initiatives and schemes proposed by the Government others, which would help deal with the issues that India and
of India to build a strong eco-system to nurture innovation the world face. These require investments in deep
and empower Startups across India. technology and products which are built to scale globally.
The 19-point Action Plan, organized by the Department of
Industrial Policy & Promotion (DIPP), focuses both on Significance of the Study
restricting hindrances and promoting faster growth by way Starts ups have played and continue to play significant roles
of: in the growth, development and industrialization of many
 Simplification and Handholding economies all over the world. Startup is flagship initiative of
 Funding Support and Incentives the government of India, intended to build a strong eco-
 Industry-Academia Partnership and Incubation system for nurturing innovation. Startup will drive
sustainable economic growth and generate large scale
Launch of Startup India Action Plan Startup India’s 19- employment opportunities and minimize unemployment.
Point Action Plan
1. Self-certification compliance, Statement of the Problem
2. single point of contact via Startup India Hub The emergence of startup wave in India is a relatively a new
3. Simplifying processes with mobile app and portal phenomenon. Today India is undergoing a fundamental shift
(for registration, filing compliances & obtaining with entrepreneurship and innovation is being primary
information) catalyst in job creation and solving everyday problems. A
4. Legal support, fast tracking & 80% reduction in patent decade ago, there is to be only a handful of startups such as
registration fee Make My Trip.com and Naukari.com. But, now with the
5. Relaxed norms of public procurement success of such as Flipkart, Quicker, Practo, Zomato and
6. Easier & faster exit Inmboi, the Indian startup eco-system has indeed come a
7. Funding support via a fund of funds corpus of INR long way.
10,000 crore
8. Credit Guarantee Funding Research Methodology
9. Tax exemption on capital gains The study is based on the secondary data which has been
10. 3-Year income tax exemption collected through journals, magazines, newspapers, research
11. Tax exemption on investments above Fair Market papers, books and websites etc.
Value (FMV)
12. Annual startup fests (national & international) Objectives of the Study
13. Launch of world-class Innovation Hubs under Atal 1. To examine the various issues and challenges of
Innovation Mission (AIM) startups
14. Set up of country-wide incubator network 2. To identify various government initiatives for the
15. Innovation centers to augment incubation and R&D development of startups.
16. Research parks to propel innovation 3. To analyze the growth and opportunities of startups
17. Promote entrepreneurship in biotechnology
18. Innovation focused programs for students The Startup Scenario in India
19. Annual incubator grand challenge

Review of Literature
Narendra Modi (2016) [1] stated that, the Startup India is a
revolutionary scheme that has been started to help the
people who wish to start their own business. These people
have ideas and capability, so the government will give them
support to make sure they can implement their ideas and
grow. Success of this scheme will eventually make India, a
better economy and a strong nation.
Grant Thornton (2016) [2] define, the startup business as an
organization which is an entrepreneurial venture/a

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It is to be noted that every year more than 800 technology population at the ‘bottom-of-the-pyramid’ space. Each
startups are being set up in India. By 2020, it is estimated problem provides a unique opportunity for startups to create
that around 11,500 tech-startups are going to be established a business around it.
with employment potential of around 250,000 technical
people (NASSCOM, 2015). It is admirable to note that India Issues and Challenges of Startups
is amongst the top five countries in the world in terms of Some of the major issues and challenges are discussed
startups with 10,000+ led by US with 83,000+ comprising below:
43% tech-based firms with 9% managed by women
entrepreneurs. The number of incubators also has crossed 1. Financial resources
100 in 2014-15 to give boost to the startup saga (Grant Availability of finance is critical for the startups and is
Thornton, 2015). always a problem to get sufficient amounts. A number of
finance options ranging from family members, friends,
Sector Wise, the Distribution of Indian Startup loans, grants, angel funding, venture capitalists, crowd
Businesses funding etc are available. The requirement starts increasing
as the business progresses. Scaling of business requires
Table 1: Break-Up of Indian Startup Businesses timely infusion of capital. Proper cash management is
Technology based Non-technology Based critical for the success of the startups (Skok, 2016; Pandita,
E-Commerce - 33% Engineering- 17% 2017). A recent report paints a gloomy picture with 85% of
B2B - 24% Construction-13% new company’s reportedly underfunded indicating potential
Internet - 12% Agri- products- 11% failure (Iwasiuk, 2016).
Mobile apps - 10% Textile - 8%
SaaS - 8% Printing & packaging – 8% 2. Revenue generation
Other – 13% Transport & logistics- 6% Several startups fail due to poor revenue generation as the
Outsourcing & support -5% business grows. As the operations increase, expenses grow
Others-32% with reduced revenues forcing startups to concentrate on the
Source: Startups India- An Overview, Grant Thornton, 2018 funding aspect, thus, diluting the focus on the fundamentals
of business. Hence, revenue generation is critical,
warranting efficient management of burn rate which in
common parlance is the rate at which startups spend money
in the initial stages. The challenge is not to generate enough
capital but also to expand and sustain the growth.

3. Team members
Startups normally start with a team consisting of trusted
members with complementary skill sets. Usually, each
member is specialized in a specific area of operations.
Assembling a good team is the first major requirement,
failure to have one sometimes could break the startup (Skok,
The Startup Eco-System
2016).
Along with government initiatives, there is a definite
movement in startup arena in India due to penetration of IT
4. Supporting infrastructure
and internet. Many startups are coming up in service sector
There are a number of support mechanisms that play a
including education, legal, retail, insurance and health. With
significant role in the lifecycle of startups which include
customers becoming aware of the benefits and convenience,
incubators, science and technology parks, business
the popularity and viability of startups is no more a difficult
development centers etc. Lack of access to such support
proposition for an entrepreneur.
mechanisms increases the risk of failure.
A number of venture capitalists and angel investors are
aggressive and gung-ho on Indian startups as they see lot of
5. Creating awareness in markets
potential with few expected to become unicorns (high
Startups fail due to lack of attention to limitations in the
valued companies) bringing in good returns. On the
markets. The environment for a startup is usually more
contrary, there are examples of few startups that failed and
difficult than for an established firm due to uniqueness of
eventually closed their businesses due to various issues and
the product. The situation is more difficult for a new product
challenges.
as the startup has to build everything from scratch.
India being a large country with over 130 Cr populations,
boasts of high demographic dividends due to large number
6. Exceed customer expectations
of young people. According to the latest UN report India
The next most important challenge is gauging the market
with 356 million 10-24, year-olds have the largest
need for the product, existing trends, etc. Innovation plays
concentration of youth population who are going to be the
an important role, since, that the startup has to fine-tune the
driving force behind innovation and creation with
product offerings to suit the market demands (Skok, 2016).
commensurate demand and consumption of goods and
Also, the entrepreneur should have thorough domain
services (Mittal, 2014).
knowledge to counter competition with appropriate
India has a unique set of problems due to multicultural and
strategies. Due to new technologies that are emerging, the
multilingual regions that need innovations to find solutions
challenge to provide over and above an earlier innovation is
to health, education, infrastructure, sanitation and for
pertinent.

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7. Tenacity of founders Sequoia Capital and Accel Partners. More and more are
Founders of startups have to be tough when the going gets going to join the bandwagon as this is the tipping point in
tough. The journey of starting a venture is fraught with Indian commerce for making good returns by backing
delays, setbacks and problems without adequate solutions. potential unicorns.
The entrepreneur needs to be persistent, persuasive, and
should never give up till he/she achieves desired results. Government Initiatives
There are numerous government and semi-governmental
8. Regulations initiatives to assist startups.
Starting a business requires a number of permissions from
government agencies. Although there is a perceptible 1. Start-Up India
change, it is still a challenge to register a company. This initiative provides three-year tax and compliance
Regulations pertaining to labor laws, intellectual property breaks intended for cutting government regulations and red
rights, dispute resolution etc. are rigorous in India. tapism.

9. Lack of mentorship: 2. Mudra Yojna

Lack of proper guidance and mentorship is one of the Through this scheme, startups get loans from the banks to
biggest problems that exist in the Indian startup ecosystem set up, grow and stabilize their businesses.
(Choudhury, 2015). Most of startups have brilliant ideas
and/or products, but have little or no industry, business and 3. SETU (Self-Employment and Talent Utilization) Fund
market experience to get the products to the market. It is a Government has allotted Rs 1,000 Cr in order to create
proven example that a brilliant idea works only if executed opportunities for self-employment and new jobs mainly in
promptly (Mittal, 2014). Lack of adequate mentoring/ technology-driven domains.
guidance is the biggest challenge which could bring a
potentially good idea to an end. 4. E-Biz Portal
Government launched e-biz portal that integrates 14
10. Lack of a good branding strategy regulatory permissions and licenses at one source to enable
Absence of an effective branding strategy is another issue faster clearances and improve the ease of doing business in
that prevents startups from flourishing at a faster India.
pace. Hemant Arora, Business Head-Branded Content,
Times Network opines that branding demands paramount 5. Royalty Tax
attention as it gives an identity and occupies a space in the Indian government has reduced the royalty tax paid by
consumer minds (Choudhury, 2015). businesses and startup firms from 25per cent to 10 per cent

Opportunities for Startups Investments by the Big Business Houses

In spite of challenges and problems that startups are facing, Big business houses have already investing in startups.
Indian markets provide a plethora of opportunities to find Industrialists like Ratan Tata (Ola, Bluestone etc), Azim
solutions tailored to solve them. Below is a list of few of the Premji (Data Stax, Myntra etc) and many more are investing
opportunities that are discussed for consideration by in startups giving desired traction and respectability to the
startups. segment

1. India’s Large Population Examples of Opportunities for Startups

The population of India is a huge asset for the country. By Startups in Indian scenario have a tremendous scope in
2020, it is expected that the working age population would catering to local and niche markets that could be viable and
surpass the non-working population. This unique sustainable with early potential of revenue generation. With
demographic advantage will offer a great opportunity to any small area of operations and right product /service the
startup. Various infrastructure issues and the bottom- of- success rate could be high with possible chance for
the- pyramid market would provide huge opportunities for expansion. The bottom-of-the pyramid space is a potential
the startups. market for offerings ranging from food, clothing, water and
hygienic items. The selection of items would be based on
2. Change of Mind Set of Working Class the entrepreneurs’ expertise and the area of operation.
Traditional career paths will be giving way to Indian startup
space. Challenging assignments, good compensation Table 2: List of Current Startups and Area of Operations
packages would attract talented people to startups. Also, it is Area of Operation Startup Firm Name
seen that several high-profile executives are quitting their Online food delivery Freshmenu, swiggy
jobs to start or work for startups. Online fish, meat delivery Fresh to home
Big data analytics for trade Peel works
3. Huge Investments in Startups Online pharmacy Myra
Huge investment in Indian startups from foreign and Indian Platform to get local businesses online Now floats
investors is taking place. In 2015, more than 300 deals were Logistics management software Fareye
done by 300+ angels and venture capital/ private equity Lifestyle tracking platform Healthi fyme
players with around $6.5-billion (Rs 42,300Cr) investments Payments solutions for credit/debit cards Pine labs
making India the most sought-after destination for AI-driven solutions for retailers- Staqu
investments. Some of the active players are New York- Packaged ready-to-cook idli /dosa batter Id foods
based Tiger Global Management, Russian company- DST Peer-to-peer lending Fair cent
Global, Japanese telecom giant Softbank, Kalaari Capital, Source: 17 Startups to Watch, TOI, 2018

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Table 3: Startup Opportunities- Low-End Ventures 11. Griffith Erin. Why startups fail, according to their
Snacks and Tiffins Health drinks Franchising founders. 2014.
Media support 12. India filings Report, Challenges faced by Startups in
Waste management Food Processing India, 2016.
services
Solar Energy 13. Nathani Komal. How this Start-up has Realized the
Washing and Ironing Retailing
products Dream of Buying a Holiday Home for Many Indians,
Supply of Drinking water Education & training
Health & Entrepreneur India.
Pharmacy 14. Rediff.com, 20 good opportunities in India for
Diagnostics Centers IT and ITES Food Delivery entrepreneurs
Source: 17 Startups to Watch, TOI, 2017 15. Skok David. 5 Reasons Startup Fail. Matrix Partners,
2016.
Table 4: startup opportunities- high-end ventures (export oriented) 16. Pandita Shivani. 10 Financial problems faced by
Auto-Components Ayurvedic medicines startups and their possible remedies, Knowstartup.com,
Horticulture Software Exports 2017.
Engineering Goods Biotechnology 17. Aggarwal, Aakanksha. Problems Faced by Startups in
Organic Farming Floriculture India and Solutions, Times of India report, startups to
Source: 17 Startups to Watch, TOI, 2018 watch in 2017.

Conclusion
The current economic scenario in India is on expansion
mode. The Indian government is increasingly showing
greater enthusiasm to increase the GDP rate of growth from
grass root levels with introduction of liberal policies and
initiatives for entrepreneurs like ‘Make in India’, ‘Startup
India’, MUDRA etc. ‘Make in India’ is great opportunity for
the Indian start-ups. With government going full hog on
developing entrepreneurs, it could arrest brain drain and
provide an environment to improve availability of local
talent for hiring by startup firms.
The startup arena has lot of challenges ranging from finance
to human resources and from launch to sustaining the
growth with tenacity. Being a country with large population,
the plethora of opportunities available are many for startups
offering products and services ranging from food, retail, and
hygiene to solar and IT applications for day to day problems
which could be delivered at affordable prices. It is not out of
place to mention that some of these startups would become
unicorns and may become world renowned businesses by
expanding into other developing and underdeveloped
countries.

Reference
1. Narendra Modi. Prime Minister of India, 2016.
2. Grant Thornton Report-Startup India-An Overview,
2015.
3. Institute for Business Value (IBV) Business line
Bureau. 2018.
4. Nipun Mehrotra. Chief Digital Officer, IBM India/
South Asia, 2018.
5. Dr. Gopaldas Pawan Kumar, PhD, David Memorial
Institute of Management, Tarnaka
6. Sinu M. School of distance education, University of
Calicut, Kerala.
7. Anand Paramjit. Opportunities for Startups in India,
Acreaty Management Consultant (P) Ltd, The
Entrepreneur, 2016.
8. Chaudhary, Varnana. The Biggest Roadblocks Faced by
Startups in India, 2015.
9. Chokhani Rohit. Principal Founder, White Unicorn
Ventures, Challenges and opportunities for Indian start-
ups; Key points to note, 2017.
10. Derek Iwasiuk. Key Challenges, Opportunities for Tech
Startups in Emerging Markets, Moneycontrol.com,
2016.

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