Recent comments by commerce minister Piyush Goyal on the trends in the Indian startup ecosystem have sparked a fiery debate. While the minister’s concerns are not completely misplaced, with a large share of Indian unicorns operating in the consumer and retail segment, a lack of the country’s impetus towards research and development (R&D) may also be holding innovation back.
A Mint analysis of startups recognised by the department for promotion of industry and internal trade (DPIIT) shows that the space is dominated by IT services, followed by healthcare and life sciences. The food and beverage industry, including food delivery services, was among the top five industries where startups operate. However, the data also revealed that the country is taking baby steps towards innovation, with 2,414 artificial intelligence startups recognized by the government.
While it is true that the share of AI startups in India (just 1.5% of the total recognized ones) is at a nascent stage and nowhere close to what the US and China are doing, experts feel India still has opportunities to catch up, especially if even one company takes the lead—the way Google and Amazon have led the way in the US.
“Once a deep tech company creates a winning product and generates significant returns, the rest will follow. We have seen with the pioneers of India’s IT services industry, such as the founders of Infosys, that when wealth is created, it eventually flows back into further R&D and innovation,” Arun Natarajan, founder and managing director of Venture Intelligence said.
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Unicorn bias
However, despite evidence of some breakthroughs in the AI world, the success of a handful of startups (those who have achieved unicorn status) dominates the understanding of the startup space. India has the world’s third-largest number of unicorns (67) behind the US (687) and China (162) but is dominated by consumer and retail space and financial services, a Mint analysis of a list of 1,270 unicorns compiled by CB Insights showed.
In comparison, the US leads in enterprise tech, which includes AI. While China has a high share of the consumer and retail segment as well, it also has a similar share of the industrial sector, which includes drone and chip manufacturing and automated driving technology.
The more worrying point is that a few countries which have fewer unicorns than India are leading the enterprise tech and industrial segment. Israel (with 23 unicorns currently) and Canada (with 21 unicorns) are dominated by these sectors. However, experts don’t feel India has missed the bus and the country will have the opportunity to catch the next wave of technological innovation, with more focused policies from the government.
The US has been a pioneer in space technology and has decades of history in venture capital and private equity, while China has had decades of strong government support, funding and strategic planning for innovation.
Also Read: The real innovation laggard is India Inc, not startups
A glaring gap
The Indian economy is dominated by private consumption, which makes up about 57% of total activity. Naturally, the early startups took advantage of the rising income of the consuming class by offering them delivery services and shifting retail shops to online to cater to India’s growing internet base. However, if India, or the current government, wishes to put the country on the track of innovation, a huge shift will be needed towards R&D spending, something the Economic Survey 2024-25 also highlighted.
World Bank data on R&D spending as a percentage of GDP shows that the countries (among those with more than 20 unicorns) that have high enterprise tech unicorns also have high R&D spending. Israel spends 5.6% of GDP on R&D, while the US spends 3.5% and China 2.4%. India, on the other hand, is lagging significantly behind with just 0.6% share in GDP. This was also highlighted by the Economic Survey 2024-25.
What is more worrying is the trend of Indian founders producing more offshore unicorns than any other country. According to the Hurun’s Global Unicorn Index 2024 report, Indian founders co-found 109 unicorns outside of India, suggesting a lack of a conducive environment in India and taking their business ideas elsewhere.
