India has emerged as the second-largest start-up hub globally and has achieved spectacular growth in a short period. The number of start-ups in India has increased significantly over the past few years, growing from 471 in 2016 to 72,993 in 2022, creating more than 7 lakh job opportunities in the process.

As a result, India has one of the largest start-up ecosystems in the world, trailing only behind the US and China. Further, the emergence of India in the global economic scenario has created more opportunities for start-ups. Owing to the pandemic, start-ups faced certain challenges, yet they continued to thrive as businesses accelerated the adoption of technology.

The sector where technology adoption was most apparent was insurance, which saw the shift towards hyper-personalised products, digital on-boarding, and real-time policy tracking. In healthcare, start-ups are evolving in personalising and enhancing the healthcare experience with cutting-edge technology.

The sunrise sectors witnessed good traction for start-ups. Sectors that have seen the maximum increase in start-ups are sustainable products (in fashion chemicals), tech innovation in healthcare infrastructure, agri-tech businesses, virtual tourism, EVs, defence and space manufacturing sectors, financial services, and education. At the same time, the momentum of investment continues in e-commerce, offline to online retail, fintech, and ed-tech start-ups.

Though start-ups have good opportunities, the challenges in the financial sector and the regulatory framework are posing roadblocks to the growth of start-ups.

The synchronous tightening of monetary policy by the central banks of major nations led to a global liquidity squeeze, which, coupled with other global incidents such as the Russia-Ukraine war, energy price fluctuations, dollar appreciation and inflation, has reduced investor confidence and risk-appetite.

The top three sectors that received the maximum funding were alternative lending, genomics, and payments.

There are certain expectations from the Union Budget 2023 for start-ups. First, there needs to be a reduction in the compliance burden on start-ups to promote ease of doing business. Furthermore, reforms are needed in the capital gains taxation of start-ups.

Also, the weighted deduction for employment generation should be considered. Moreover, taxation for ESOPs should happen at the time of sale and not before that. These changes will help start-ups flourish in the future.

The writer is Partner, Deloitte India