Startups have become face of India's entrepreneurial ecosystem

New Delhi [India], March 10 : Startups have become the face of India's entrepreneurial ecosystem, the president of National Academy of Sciences, Balram Bhargava stated in his writing, however adding that India will have to take care of the new 'Flipping' trend.
Bhargava writes that looking at trends of the Economic Survey 2022-23, the increasingly pivotal role of the startups becomes very clear.
Firstly, there has been an explosion in the number of startups from 452 in 2016 to 84,012 in 2022. Secondly, startups are driving a significant portion of job creation in India, having created 900,000 direct jobs. Thirdly, a big percentage of this growth is emerging from Tier II and III cities, which are now home to 48 per cent of Indian startups.
As per Bhargava, Health and biomedical research, startups are playing a critical role in driving innovation in genomics and stem-cell research, reinventing healthcare services by using cloud computing and AI, streamlining telemedicine and revolutionizing hospital and patient information management systems.
"In 2021, India became home to 3,548 active healthtech startups, which received 2.2 billion USD in funding. The nation has also emerged among the top 12 destinations for biotechnology globally, projected to make up 19% of the world's multi-billion biotech market by 2025. By 2024, India will have over 10,000 biotech startups, which will provide high quality and affordable medicines, diagnostic and MedTech products and services to the public, taking the nation closer to its goal of universal health coverage.," Bhargava writes.
However, in recent times, the trend of 'flipping' has emerged as a major barrier in this story of indigenous startup driven innovation and economic growth.
Flipping, in simple terms, is the act of transferring the entire ownership of an Indian company to an overseas entity while mirroring the original shareholding of each investor. It transforms the Indian company into a 100 per cent subsidiary of a foreign entity, while the founders and investors retain the same ownership via the foreign entity. Flipping is often observed at the early stages of startups, occurring in India due to promises of high valuations by foreign Private Equity firms, Bhargava points out.
There are numerous instances of flipping in Indian start-ups. In such cases, while the Indian founder gains a significant valuation in US dollars, the country loses. It loses ownership of Intellectual Property, data, research, taxes, and any market cap that could have accrued if it had been listed in the Indian stock markets. This is in addition to the loss of critical human resources, especially in sensitive sectors such as biomedical innovation.
The company, its investors, value capture, IP and data are domiciled overseas with little accountability to Indian regulators, while utilizing Indian customers, Indian workforce, Indian IP and Indian data to create wealth overseas.
However, Bhargav believes that all is not lost.
"The Economic Survey 2022-2023 shows the growing recognition in policymakers and government to reverse this phenomenon and reflip the startups. Through simplification of tax structures, particularly on employee stock options, facilitating capital flows, strengthening confidence in tax litigations, incubating, and fostering a conducive environment for startups, particularly in social innovation and impact investment sectors and promoting mentorship programs with private entities, the Survey charts a clear roadmap to curb the flight of innovation and retain our young entrepreneurial talent. The Survey also recommends the institution of an Inter-Ministerial Board certification for startups," Bhargava writes.
Furthermore, the government's ongoing efforts to modernise the IP regime, reduce legal compliances and promote IP filing for startups have already started showing dividends. Between 2016-2021, India saw a 46 per cent growth in domestic filing of patents. The recent shift of domicile by PhonePe from Singapore to Bengaluru appears to be a testament to the rigorous efforts being made to stem flipping and harbour indigenous talent. However, some observers remain sceptical and are of the view that the flipping trend may have stalled more on account of US Fed's Quantitative Tightening, which has made overseas listing a less lucrative option, Bhargava states.
As per Bhargava, startups will be the future of innovation and entrepreneurial growth in India across industries. The health sector will be no exception, as new ventures will develop indigenous solutions to health challenges and leverage breakthrough technology to build universal access to life-saving drugs, diagnostics and treatments. Fostering the ecosystem of startups and creating conducive regulatory and policy frameworks to promote their growth will be a critical part of India's journey towards a health technology and innovation global powerhouse.
"In this globalised village of a world, there are several new bilateral initiatives being undertaken on fostering and investing in cutting-edge start-ups. However, India has to guard against losing such jewels in her crown to foreign shores," Bhargava adds.