Start-up Stimulus to Indian Economy – UPSC GS3

Context: Foreign money pouring into the start-up universe may finally provide the stimulus to the economy that the government was unable to provide.
  • In the first six months of calendar 2021, $10 billion was raised by start-ups and private companies in India.
  • In July, another $10 billion was raised, led by the mammoth $3.6 billion by Flipkart, the single largest fundraising by a private company in India. 
  • At this rate, in 2021, we may see almost $40 billion being pumped into the Indian private company universe by global capital.
  • This surge points to the faith shown by investors in the Indian Economy.
Factors pointing towards a robust future growth of the Indian Economy:
  • Money raised by the start-up/private ecosystem will be spent to hire people, build infrastructure, strengthen the core tech, accelerate demand and build the brand.
  • It will lead to a strong revival of the IT sector. Attrition has rocketed (Cognizant just reported attrition of 31%) and salary hikes are accelerating.
  • Trend of higher value-added manufacturing relocating to India. The trend is a result of the Production Linked Incentives schemes, China+1 strategy adopted by most MNC’s or structural industry change.
    • It is noticeable particularly in specialty chemicals, API, precision manufacturing in automotive and light engineering, and textiles. As a result, exports will accelerate, after almost five years of no growth.
  • Reversal in the real estate sector. Housing demand is strong and pricing is improving. It is only a matter of time before new construction begins to pick up.
Way Forward:
  • India must make sure that it does not shoot itself in the foot and inadvertently take measures to temper foreign enthusiasm. The enthusiasm is very high towards India due to the apparent next wave of innovation and a high degree of mistrust over China post the pandemic.
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