125 Unicorns and Counting: A Decade of Startup India

On January 16, 2026, Prime Minister Narendra Modi commemorated the tenth anniversary of the Startup India initiative, which debuted in 2016 as a flagship policy to accelerate entrepreneurial growth. Over a decade, India’s startup ecosystem has surged, housing over 120 unicorns with valuations exceeding $350 billion. Today, India boasts the third-largest startup ecosystem globally, producing more than 2 lakh startups. Yet, the celebration raises more questions about the sustainability and inclusivity of this boom than the government’s narrative suggests.

Breaking the Pattern: Tier II and III Cities Rise

One striking departure from standard trajectories is the emergence of non-metropolitan hubs. Unlike the early years dominated by Bengaluru, Delhi-NCR, and Mumbai, nearly 50% of India’s startups now originate from Tier II and III cities. Indore, Jaipur, and Surat have seen vibrant ecosystems, buoyed by improved internet penetration and digital public infrastructure.

India's ascent to 38th place on the Global Innovation Index (2025), up from the 48th rank in 2020, underscores this grassroots progress. However, smaller-city ecosystems remain shallow, with limited access to angel investors or mentorship networks. The government acknowledges this challenge, but schemes like Startup India Seed Fund—a ₹945 crore corpus—barely scratch the surface. The irony here is that while celebrating inclusive growth, policy tools remain concentrated in metro corridors.

The Institutional and Regulatory Machinery

The machinery driving Startup India is a web of legislative and administrative frameworks. The Ministry of Commerce and Industry has anchored policies within frameworks such as the Startup India Action Plan and sectoral initiatives like AI Centers of Excellence. Tax incentives, simplified registration under Section 80-IAC of the Income Tax Act, and exemptions from angel tax (Section 56(2)(viib)) have emboldened innovators. Startup recognition under the Companies Act has reduced compliance burdens, fostering formal employment.

However, frequent regulatory changes, such as new TDS rules under Section 194R or withdrawal of GST exemptions for e-commerce, complicate startup operations. Policy “flip-flops” discourage risk-taking, particularly in deep-tech sectors like AI, semiconductor manufacturing, or green technologies, which require long gestation periods. It is worth questioning whether institutional actors can balance short-term tax needs with long-term growth imperatives.

The Data Behind the Boom

The government often lauds India’s unicorn tally—125 strong—but what the headline obscures is capital volatility. Between 2021 and 2023, VC funding dried up by nearly 35% amid global economic shocks. Dependency on foreign capital magnifies vulnerabilities. With 75% of funding flowing from abroad, startups are tethered to geopolitical events outside their control.

Moreover, deep-tech and early-stage startups face acute shortages of patient capital. For instance, of the ₹15,000 crore corpus planned under the Fund of Funds for Startups (FFS), only ₹7,000 crore had been effectively deployed by 2025—an execution gap that raises questions about bureaucratic efficiency. Inadequate private-sector investment in research and development, accounting for just 0.3% of GDP, compares poorly with China’s 2.4% R&D spending.

Uncomfortable Questions: Inclusivity, Timing, and Capacity

Would India have witnessed similar results without the Startup India initiative? The ecosystem benefited significantly from external forces: cheap mobile data driven by Jio’s rollout, a wealthy global investment climate between 2016-2020, and urban migration trends. These broader conditions were less a result of policy design and more circumstantial.

Inclusivity also remains uneven. Women-led startups account for less than 20% of the ecosystem, according to DPIIT data. Despite programs like the Women Entrepreneurship Initiative, structural barriers—ranging from funding biases to cultural norms—hamstring progress. And while over 2 lakh startups have emerged, unicorn valuations often overshadow persisting infrastructure gaps in smaller cities.

Finally, questions linger over sectoral priorities. AI Centers of Excellence are undeniably vital, but innovation in agriculture, logistics, or clean water—the core of India’s socioeconomic fabric—receives less fanfare. Are policymaking priorities aligned with national development needs or venture capitalist preferences?

International Comparison: What South Korea Did Differently

Consider South Korea’s Creative Economy Initiative (2013), which tackled the same objective of fostering startups. Unlike India’s focus on regulatory simplification, South Korea emphasized direct public investment in incubators and local research hubs, allocating $4 billion annually for R&D grants. It also leveraged chaebols—large conglomerates—to nurture smaller innovators through technology-sharing mandates.

India, in contrast, leans heavily on private capital with insufficient state-backed innovation. South Korea’s growth shows that government-led efforts, coupled with industry mentorship frameworks, can deepen regional ecosystems—a lesson potentially useful as Tier II and III cities evolve. Without comparable direct investments, India’s “inclusive narrative” risks losing momentum.

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