By Rohit Kapur
India has the third largest startup ecosystem in the world – driven by availability of funding, increasing middle class income, vast domestic consumption, growing internet penetration, and continuous government reforms to support and nourish startups in the country.
In terms of sectors, IT and ITeS, e-Commerce, FinTech, FMCG, and healthcare have provided lucrative investment opportunities to foreign investors in India. Let’s take a look at these sectors in more detail below:
- IT and ITeS – India is the preferred sourcing destination for IT companies across the world. The country’s software and hardware sector has attracted a cumulative FDI of USD 37.23 billion from April 2000 to March 2019 – the second highest FDI inflow in terms of sector distribution. India continues to host a large number of successful IT startups. One such startup is Druva, which attained the coveted Unicorn status earlier in 2019. It is a SaaS based IT startup which provides security and data management solutions over the cloud.
- e-Commerce – Indian e-Commerce sector has seen an exponential rise in the last decade and is expected to surpass the US to become the second largest e-commerce market in the world by 2034. E-commerce has changed the shopping patterns in India. Indians have growing aspirations for using international brands which can now be fulfilled due to increased internet penetration, deep online discounts, easy availability to even tier 2 and 3 cities. Bengaluru based e-commerce startup, Flipkart has been India’s biggest and most successful startup story. It was recently acquired by Walmart in a whopping USD 16 billion deal.
- Fintech – India, in 2019 climbed on the second place in terms of numbers of fintech startups. Despite the sector being relatively new, a three-fold increase in the number of fintech startups was observed between 2015-2018. Some significant names that have made an impact include Paytm, Policy Bazaar, MobiKwik, PhonePe, and PayU. As per several industry reports, India’s fintech market is expected to reach USD 2.4 billion by 2020. From digital wallets to lending, fintech has changed the way financial transactions are carried out in India.
- FMCG – The FMCG sector is the fourth largest sector in the Indian economy. The market for FMCG in India reached USD 52.75 billion in FY18 and is estimated to reach USD 103.70 billion by 2020. In the last five years, more than USD 430 million have been invested in Indian FMCG startups. Some of the top funded FMCG startups in India include Bira 91, Drum Foods, Hector Beverages, Chai Point and RAW Pressery. Industry giants including Sequoia Capital and Matrix Partners have a prominent stake in these startups. Focused funds like DSG Consumer Partners have been actively investing in FMCG startups. With changing consumer habits, increased awareness, rising middle class income, and a population size of 1.3 billion, this sector holds golden opportunities for foreign companies planning to do business in India.
- Healthcare – India’s healthcare industry is expected to hit the USD 280 billion mark by 2020. With the advent of technology companies in the healthcare market, the sector is all set to create new waves of innovation. There are around 3000 startups in India which operate in the health tech segment such as Practo, CureFit and Net Med, among others. There is an acute shortage of healthcare infrastructure in the country and startups can become the means to provide healthcare to all citizens. Major initiatives have been taken by the Government of India to promote India’s healthcare industry, one of these is Pradhan Mantri Jan Arogya Yojana (PMJAY) which provides health insurance worth INR 500,000 (USD 7,000) to over 100 million families every year.
India, as a market, offers exciting opportunities for businesses to scale. The country’s rank has significantly improved in the World Bank’s Ease of Doing Business Ranking from 142 in 2014 to 63 in 2019, a rare feat for an economy of this size.
Continuous improvement in India’s ranking underscores the sustained reforms taken by the government to attract foreign investments in the country. One of the initiatives of the Indian government, Startup India, aims at empowering start-ups through funding support, incentives, simplification of processes, and industry-academia partnerships.
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