Monthly News Updates & Analysis of Indian Startup Ecosystem : July, 2017

The month of July has been an eventful one for Indian startup ecosystem. From Prime Minister Narendra Modi’s visit to Israel, to the implementation of GST, the Indian startups have endured it all and are set to reach new heights in the coming months. The incredible pace with which the startups have accustomed themselves with the changing national and international economic scenario, has been phenomenal.

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Prime Minister Narendra Modi has been the first Prime Minister to have visited Israel. Narendra Modi and Benjamin Netanyahu, the Prime Minister of Israel, has propelled a bi-country innovation experiment for startups in both the countries. The challenge is called the India-Israel Innovation Bridge. The Department of Industrial Policy and Promotion, under the Ministry of Commerce & Industry, Govt. of India and The Israel Innovation Authority have taken the initiative jointly. The challenge will be hosted on an online platform. It is perceived to be one of the major steps to facilitate bilateral collaboration between the startups and other key players in both the countries. By this partnership, startups of India and Israel will be working in tandem with each other to develop solutions to some critical challenges in water, digital health, and agriculture. The key of this initiative is to bring the technological strength of Israel and huge potential of Indian market in a single podium in order to facilitate each other’s startup ecosystem.

Another crucial development of the month has been the implementation of GST. It is likely to play a major role in shaping the startup ecosystem in India. For instance, in the previous tax regime, Indian companies needed to register their companies for the payment of taxes only if the turnover was more than 10 lakhs per year. However, post-implementation of GST this limit has been set to 20 lakhs. This will primarily benefit the SMEs and the small startups. Moreover, the tedious job of registration has been done away with. From now on, these companies will register once, and they are entitled to pay a single tax. Various taxes such as VAT and layered state taxes have been consolidated into one tax. Many companies were forced to setup isolated warehouses in various states. These costs have fallen resulting into a reduction in the cost of production as well as logistics. Currently, the big companies obtain goods based on their locality so that the total overheads is reduced. Hence, the startups tried to limit their customers within the state of their operation as they had to bear the burden interstate taxes. After the implementation of GST, these taxes have been nullified as the tax credit is transferred irrespective of the location of seller and the buyer. The tax credit concept in GST is set to reassure the growth of startups considerably. Under the GST regime, startups operating in the service industry are eligible for a rebate on the total VAT paid on office goods purchases which will lead to a significant reduction in the cost of operation for these startups.

In another development last month, the G20 (or G-20 or Group of Twenty) praised India on startup funding, labor reforms, and various initiatives being taken in India for the promotion of ease of doing business. The Hamburg Action Plan has been adopted at the G20 Summit. Under the plan, the group said that “in the financial sector, India is popularizing a number of derivative instruments in exchanges or electronic trading platforms” in order to enhance the resilience of its economy. The G20 also said that India is assisting the external commercial borrowings or ECBs by the startups in order to promote innovation and boost ease of doing business. Moreover, the group observed that various steps that are being taken by the member countries have been encouraging inclusive growth. The Action Plan also said that India has a prominent position in terms labor market reforms, escalating female participation and encouraging ease of doing business, especially for startups in the country.

India was a part of the list of ‘Break Out’ countries in the Harvard Business Review’s (HBR) latest edition of Digital Evolution Index 2017. 60 countries have been indexed in terms of their digital state. The ‘Break Out’ bracket includes other countries such as Kenya, Bangladesh, Indonesia, Mexico etc. Some of the major factors fuelling India’s digital economy are its vast population base, increasing adoption of technology and the evolution of skilled and global language-speaking youth.

Another important development that has been the news of the month is the acquisition deal of Flipkart and Snapdeal. Snapdeal rejected Flipkart’s initial offer of US$ 700 million, following which the latter revised its offer to around US$ 850 million. Finally the deal was set at US$ 970 million, as per the latest reports. Flipkart’s offer includes Snapdeal’s marketplace business and Unicommerce. Snapdeal has about 25 institutional shareholders and dozens of individuals who have investment in the company. According to the latest reports, the shareholders have given a thumbs up for the deal. However, SoftBank, one of the key investors of Snapdeal, has said that it will back out of the merger in case the deal does not get the approval of all minority shareholders. Some of the prominent shareholders include Tata Group chairman emeritus Ratan Tata, BlackRock, Foxconn, Temasek who have given their approval, and Ontario Pension Fund and PremjiInvest, among others, who are yet to approve the deal. If Snapdeal does not get approval from all its shareholders, the deal might not come to fruition.

Another area in which significant developments has taken place in the month of July is in the area of taxi-hailing apps. The Delhi government is in the course of banning OlaShare and UberPool owing to safety concerns of the riders during the shared rides. However, these companies are likely to face stiff competition from others including the government of India itself. The government of India is planning to launch a ride-hailing app which will include two wheelers, taxis, as well as electric cars. As said by Nitin Gadkari, “The government platform will help get more people employment opportunities. The idea is in the primary stage but we’re working on it seriously.” Moreover, ex-chief minister of Karnataka (H.D. Kumaraswamy)-backed HDK Cabs is all set to contend against Ola and Uber in some parts of the country. The company is likely to start its operations in August, in Bengaluru and expand in other cities including Belagavi, Mangaluru, and Mysuru. The well-established taxi-hailing companies (Ola and Uber) are likely to face severe setbacks. Apart from the growing number of competitors, the recent kidnapping of an Ola rider and the rape of a woman Uber rider in 2014 are seen as other jolts in the path of expansion of the cab-hailing services of these companies in India. These incidents have led to the introduction of an SOS button on the apps of these companies.

In another development, Zomato has partnered with Ola. This partnership is likely to improve customer experience by taking advantage of the strengths of both Zomato and Ola. Other news include The acquisition of Halli Labs by Google, the state-of-the-art innovation centers and co-working space for startups that are coming up in Karnataka (the project is partly funded by Members of Parliament Local Area Development Scheme (MPLADS), Fintech start-up Paytm’s investment in Mobiquest Mobile Technologies, Grofers approval for food retail from the DIPP, and joint venture of AGTech Media and Paytm, among many others.

The Indian startups have made significant developments in the month of July 2017. These developments are resulting into a higher position in terms of the quantity and quality of these startups in the global startup ecosystem. Moreover, varied interests of global tech giants such as Apple and Facebook has shown the importance of Indian resources (especially startups) in the global scenario. With government support and various partnerships with other governments and global conglomerates, the Indian startup ecosystem is likely to show its promising potential to the rest of the world.

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