Indian Startup Ecosystem Poised for Exponential Growth in Next 5-7 Years: KPMG India is likely to have a labour force of 535 million by 2030 and this demographic asset is pivotal for the growth of the startup ecosystem, offering a ready pool of talent and consumers for innovative solutions.

India's startup ecosystem is poised for "exponential" growth in the next 5-7 years fuelled by a confluence of "favourable" conditions that are uniquely positioned to foster innovation and entrepreneurship, according to a KPMG report titled "Exploring India's dynamic Start-up Ecosystem."

The report stated that key to this growth is India's large, young and tech-savvy population that is swiftly joining the formal workforce. India is likely to have a labour force of 535 million by 2030 and this demographic asset is pivotal for the growth of the startup ecosystem, offering a ready pool of talent and consumers for innovative solutions.

Government of India is proactively fostering entrepreneurship and innovation through strategic initiatives, such as the Startup India Action Plan, Startup India Seed Fund Scheme (SISF) and Production-Linked Incentive (PLI) schemes, among others.

"The focus on emerging technologies and regulatory facilitation presents a compelling opportunity for foreign investors. The streamlined startup process, tax incentives and enhanced legal and digital infrastructure are catalysing startup innovation and growth. This, coupled with robust policies, establishes India as a promising and future-ready investment destination," the report stated.

The government has undertaken forthcoming initiatives to boost the startup ecosystem. In FY25 budget, the Mudra loan limit has been raised to USD 0.02 million and USD 12 billion allocated to the Anusandhan National Research Foundation. About USD 120 million venture capital fund was proposed to improve early-stage funding across space startups.

Further, implementation of artificial intelligence (AI) in startups presents opportunities for angel investors to broaden portfolios, reduce risks and boost returns. "India and Germany's partnership on AI startups and research in sectors, including healthcare and green energy to boost scientific collaboration in new tech areas. Developments, such as government collaboration with private entities are further strengthening India's digital leadership," the report said.

Growth of tier-II and -III cities is also a significant driver of the Indian startup ecosystem. The growth of these cities is backed by the need to solve local problems, diverse funding options, improved infrastructure, robust digital payments systems and digital-first business models, all of which have attracted investors.

While Bengaluru, Delhi, and Mumbai have been the traditional unicorn hubs, securing over USD 8.1 billion in funding in CY23, other cities including Pune, Chennai, and Hyderabad are carving out their own space in the startup ecosystem. This is largely due to prestigious educational institutions, a rich talent pool, strategic locations and supportive government initiatives.

The startup growth rate in tier-II cities has seen a 15 per cent upsurge. Further, the FY24 economic survey revealed that over 45 per cent of new startups are now arising from these tier-II and tier-III cities.

"The main drivers of startup growth in these cities include lower operational costs, access to untapped markets, evolving consumer preferences and a less saturated competitive landscape. Funding within tier-II and -III cities has also surged, reflecting investor confidence in these emerging hubs," the report said.