India now holds the place for the third largest number of unicorns in the world followed by USA and China. Recently, India replaced the United Kingdom to acquire the third spot. In 2021, India saw 42 start-ups turning into unicorns which is a significant rise from 2019-2020. For the past 2-3 years, on an average 8-10 startups have been acquiring the unicorn status every year.
Unicorns are companies that have a valuation of $1 billion or more. These companies which are very high in valuation are the new vehicles of economic growth as they bring in huge foreign direct investment (FDI) and generate employment in significant numbers. As most of unicorns across the world are technology-based companies, a heavy rise in the number of unicorns in India is a testament to the increasing technological capability of India and puts India at par with the technologically advanced nations of the world. It would not be wrong to say that India is on the right track as it is closely trailing USA and China, two of the most technologically advanced nations of the world. In the internet era, tech-based Unicorns have heavily propelled the economies of USA and China and thus these Indian unicorns hold huge potential for economic growth for India as well.
How Unicorns propel economic growth:
Unicorns play an instrumental role in propelling the economic growth of a country. The primary benefits Unicorns bring to an economy (specifically India) are as follows:
- Attracting Investments – Unicorns show immense promise in terms of economic returns and therefore bring in a lot of foreign investments. This foreign investment, in turn, has a multiplier effect on the economy and therefore generate significant employment at all levels. For example, setting up of office by an Unicorn creates demand for labour, both skilled an unskilled. This demand for labour ranges from drivers, housekeeping staff to highly trained personnel in the fields of engineering, finance, accounting, law etc. As unemployment is the biggest contemporary challenge for India, Unicorns are best placed to tackle this challenge.
- Increasing Research and Development (R&D) – India spends only 0.7% of its Gross Domestic Product on R&D. A major chunk of this expenditure comes from the government itself. The rise of unicorns which are flush with cash, would also lead to increased R&D expenditure by the private sector. As all the start-ups benefit immensely from employment of technology, R&D investment in fields such as Artificial Intelligence, Machine Learning, Big Data etc. would not only provide handsome returns to these companies, but would also create an R&D ecosystem which would have spillover effect on the Science and Technology domain. The presence of huge Artificial Intelligence pool (5th largest in the world) in India would also immensely benefit from R&D investments by Unicorns.
- Formalization of the economy – Various reports suggest that 80-90% of India’s economy still works in the informal sector. This poses various challenges both at the micro and the macro levels. While working in the informal sector, individual workers face challenges such as less pays, lack of work benefits and thus a resultant debt cycle. Moreover, at the macro level, due to informalization, benefits being provided by the government fail to reach the workers as they are out of the formalization net. Unicorns can help overcome this challenge by not only providing employment but expanding the formal net of the Indian economy.
- Innovation – Unicorns also lead innovation in areas which are unexplored. The rise of crypto-currency Unicorns are a testament. These unicorns would lead the innovation in tech-specific areas such as blockchain which are currently explored in a limited manner. These technologies have potential application in a number of areas and thus these unicorns will lead the innovation. Another area that has seen a proliferation of innovative start-ups is the space sector. Thus unicorns have the potential to bring in an all-round development in innovation.
- Gendered Growth – One of the most important benefits of the rise of unicorns are the success stories of women CEOs and entrepreneurs. The well-established names of Ms. Sudha Murthy and Ms. Kiran Mazumdar Shaw are household names in India, however, with the ascendence of unicorns a new age of women have entered the board rooms like Falguni Nayar of Nykaa. The rise of unicorns is not only bringing gender parity in the boardrooms but also provides encouragement to young girls to take up careers in Science, Technology, Engineering, Mathematics (STEM) fields.
- Soft Power – With the rise in technological capability and the resultant success of Unicorns, India is well placed to increase not only its diplomatic but technological clout all over the world. The potential in this area is already showing green shoots. While Bhutan is already using the Indian designed Unified Payment Interface system, a host of countries have shown interest in using the same. Additionally, allowing the free use of CoWIN platform for vaccine administration was a praiseworthy step. Atleast 76 countries have shown interest in using the CoWIN platform for the administration of vaccines to their population.
Unicorns – Past, Present and Future
The success of unicorns in India has been phenomenal. Therefore, it is pertinent to look into the factors that led to this growth and analyze the same for a better planning for the future.
The foundational stone of the success of the unicorns was laid down in the IT Boom of 2000s. The establishment of technology clusters in cities like Bangalore, Gurugram and Pune has been instrumental in the success of unicorns. Moreover, the recent initiatives by the government in programmes like Digital India, Start-Up India etc. has also assisted in the expansion of the start-up economy.
The current ecosystem of unicorns in India is diverse. Unicorns have had a massive impact on the sectors such as retail, edtech, finance, insurance etc. Though the impact of COVID 19 on the start-up ecosystem has been largely regressive, the pandemic has not been able to dampen the spirit of investors looking at the huge consumer market in India which is set to expand with increasing digital penetration.
The future of Unicorns in India holds immense potential and the numbers of unicorns is set to increase in the coming times. However, the unicorns must eye the global markets now as we are yet to see an Indian startup which has had a phenomenal global impact.
The impact of Unicorns on any economy is fruitful and the Indian economy has taken optimum advantage of its demographic divided, STEM graduates and the conducive policy environment. However, the scope of improvement remains.
More technological clusters must be set-up on the lines of Bengaluru and Pune. Hyderabad, with the progress it is making must be a case-study worth emulation. In conclusion, start-ups must strive to be unicorns and must focus on the following in the future –
- Given the wide range of problems India faces, there is a need for a social sector unicorn which can tackle the challenges like child malnutrition, lack of sanitation, quality education in rural areas etc.
- Start-ups must also focus upon building high value companies beyond the technological clusters and utilize the high talent pool present in rural areas. The example of Zoho which runs a high-impact organization from a village called Tenkasi in Tamil Nadu can be a guiding light.
- Indian Unicorns must eye the global market with careful social impact study. For example, the micro blogging website Koo may focus on an impactful marriage of technology with social sciences to not only be technologically robust but also socially ahead. Social sciences can tell us ‘what to do’ while the technology can be used to formulate ‘how it is to be done’.
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