India’s First AI Unicorn

General Studies Paper -3

Context: Ola group’s AI firm Krutrim is India’s first artificial intelligence unicorn. Krutrim has raised $50 million at a valuation of $1 billion in a funding round.

What is a Unicorn?

• Unicorn is a term used in the venture capital industry to describe a privately held startup company with a value of over $1 billion.
• The term was coined to represent the rarity and uniqueness of such companies, much like the mythical creature.
• Unicorns are often characterized by their rapid growth, disruptive business models, and the ability to attract substantial investment.
• Growth of Unicorns: Work from home during the pandemic fueled the growth of digital businesses in India, the incident also resulted in a long unicorn list.
• Mainly three factors, a thriving digital payments ecosystem, large smartphone user base and digital-first business models, have come together to attract investors.
• Companies that achieve unicorn status are considered to be high-value and have the potential to impact their respective industries significantly.

Unicorns of India 

• As of 2023, India is home to 111 unicorns with a total valuation of $349.67 Bn.
• The year 2021, 2020, and 2019saw the birth of the maximum number of Indian unicorns.
• Bengaluru is India’s unicorn capital with the largest number of unicorn headquarters followed by Delhi (NCR) and Mumbai.
• Traditional sectors such as E-commerce, Fin-tech, E-commerce, Supply Chain & Logistics, Internet Software & Services do dominate the arena but a strong wave of unconventional sectors such as Content, Gaming, Hospitality, Data management & analytics, etc are making their place on the list.
• Mensa Brands took only 6 months to become a unicorn in 2021, making it one of fastest unicorns in Asia.  

Significance of Rise of Unicorns for Indian Economy

• Job Creation:Unicorns often experience rapid growth, leading to an increase in job opportunities.
• Innovation and Technology: Their success signifies a thriving ecosystem that fosters innovation, research, and the development of cutting-edge technologies.
• Foreign Investments:Foreign investments not only provide capital for these companies but also contribute to the overall inflow of foreign capital into the Indian economy, supporting economic growth.
• Entrepreneurship Ecosystem:The success stories of these companies motivate aspiring entrepreneurs, creating a positive impact on the overall entrepreneurship ecosystem.
• Global Recognition: Indian unicorns, especially those expanding globally, enhance the global recognition of India as a hub for technology and business innovation.
• Economic Growth:The success of unicorns contributes to economic growth by adding value to various sectors of the economy.

Measures Taken by Government of India to support Unicorn/Startups

• Atal Innovation Mission (AIM): The scheme was launched by the government in 2016, and aims to foster innovation as the government creates new programs and policies to assist start-up development in several economic areas.
• It grants approximately Rs 10 crores to finance firms over five years.
• Multiplier Grant Scheme (MGS): The Department of Electronics and Information Technology initiated the Multiplier Grant Scheme (MGS) to empower collaborative research and development among industries for the growth of goods and services.
• The government gives a maximum amount of Rs 2 crore per project for a duration of less than two years.
• Dairy Entrepreneurship Development Scheme (DEDS): The Department of Animal Husbandry, Fisheries, and Dairying has launched the DEDS scheme, which aims to create self-employment in the dairy sector.
• The activities include milk production, procurement, preservation, marketing, etc.
• Startup India Initiative: This is one of the most popular government schemes for startups in India. The Startup India Initiative aims to provide tax benefits to entrepreneurs for over five years. 
• Startup India Seed Fund Scheme: The government of India introduced this scheme in2021 to assist early-stage startups.
• The selected entrepreneurs under this scheme will get the funding of Rs 5 crore. 
• Fund of Funds for Startups (FFS): The government has established the Fund in 2016 with a corpus of Rs 10,000 crore to provide financial support to startups.
• This fund is managed by SIDBI (Small Industries Development Bank of India) and aims to promote innovation and entrepreneurship.

Challenges 

• India is home to a vibrant and diverse startup ecosystem, with a growing number of unicorn startups
• However, most of these unicorns have not gone public yet, due to various reasons, such as regulatory hurdles, high costs, and abundant private capital.
• India does not have a dedicated stock exchange for startups, unlike the US, which has the Nasdaq, or China, which has the STAR Market.
• The existing exchanges, such as the Bombay Stock Exchange (BSE) and the National Stock Exchange (NSE), have stringent listing norms, such as profitability criteria, minimum promoter holding, lock-in periods, and disclosure requirements, that may not suit the growth-oriented and innovation-driven nature of startups.

Conclusion and Way ahead 

• The Indian economy is intricately tied to the success of its startup ecosystem.
• The long-term prospects are still promising as the IMF projects that India’s economy will grow to become the third largest in the world by 2027.
• An uptick in investment activity is anticipated in the upcoming years as the world economy stabilizes, solidifying India’s standing as a top investment destination.
• There is a need to make more investments in startups that emphasize professional upskilling and ongoing education, demonstrating the industry’s dedication to worker empowerment.