Piyush Goyal’s takedown of the Indian startup ecosystem has touched a raw nerve, igniting a public debate on why Indian startups don’t seem to be focussing on cutting-edge research and innovation, creating high-tech products and offering services, especially in emerging sectors like EVs, semiconductors and artificial intelligence (AI) research. His comments should encourage Indian entrepreneurs to look beyond hyperlocal delivery business models and food delivery apps to catapult India into the big league – where China, the USA and Israel already have a sizable head start.
What Happened?
In a recent public address at the Startup Mahakumbh, Piyush Goyal, Union Minister of Commerce and Industry, GOI, exhorted Indian startups to look beyond e-commerce and online food aggregator platforms and innovate in upcoming sectors like EVs, AI and semiconductors. He wondered if Indian startups were content with serving rich Indians with online food delivery. He questioned their over-emphasis on the hyperlocal delivery business model, banking on cheap and ubiquitous labour. He took potshots on the trend of vegan and fancy food companies that he said were being operated by billionaires’ kids, adding that they were not startups in the real sense.
His fiery speech has ignited a massive debate among the business and startup community on social media sites like LinkedIn and Reddit – where those who agree with his assessment and those that don’t have passionately argued why it does or doesn’t make sense to compare the Chinese and American startup ecosystems with India’s.
Some startup leaders like Aman Gupta, co-founder and CMO at boAt Lifestyle, agreed to the minister’s assessment, suggesting that it was a clarion call, egging Indian entrepreneurs to break fresh ground in new sectors that offered immense business potential. “If you want to build a world-class product, you must know your competition. That applies to India too,” he said, indicating that Indian startups needed to keep a close watch on developments in technology elsewhere to remain competitive and globally relevant.
“Do we have to make ice cream or chips? Dukaandari hi karna hai? Are we going to be happy being delivery boys and girls? Is that the destiny of India… this is not startup, this is entrepreneurship. What are India’s startups of today? We are focused on food delivery apps, turning unemployed youths into cheap labour so the rich can get their meals without moving out of their house. Only 1,000 startups in India’s deep-tech space is a disturbing situation.”
Piyush Goyal, Union Minister, Commerce and Industry, GOI
Detractors Decry the Comparison With the USA & China
Others expressed dismay and disappointment at Piyush Goyal’s brutal takedown of the Indian startup community. They argued that the startup ecosystems in China and the USA were more mature, and businesses there have undeniably taken a massive lead in emerging technologies like artificial intelligence (AI), Generative AI, quantum computing, Internet of Things (IoT), robotics and virtual and augmented realities, among others. This first-mover advantage has helped them create new products and services, creating billion-dollar businesses that generate thousands of jobs and boost the entrepreneurial spirits, also adding heft to the national profile, adding to their bargaining power. No one can question the power transnational organizations like Alphabet Inc., Apple Inc., Microsoft Corporation and Meta Platforms, Inc. wield on government policies. Also, their ability to create overt and covert impact on the economic, social and political landscapes of the countries they operate in remains uncontested.
However, this success has not been a fluke, said business leaders. They pointed towards a yawning gap between the government spending on research and development (R&D) between India and developed markets like China, the USA and Israel (also known as the world’s startup capital). While India allocated a measly 0.64% of its total GDP on R&D, China, a much bigger economy, allocated 2.4%, while the global leader, the USA pumped 3.4% of its 25 trillion-dollar GDP, and Isreal led the pack by allocating upwards of 5.4% of its GDP on R&D in 2024.
Business leaders also suggest that issues around funding compound the challenges that Indian startups face. For instance, lower interest rates, bigger seed rounds, a more mature investor base and higher funding volumes enable startups in the USA and China with easy access to funding. Business leaders also debated Indian startups’ alleged fixation over the consumer internet business model, noting that most successful startups in the West and China morphed into their present-day avatars as the world’s biggest technology companies after their stint as consumer internet startups, indicating that Indian startups were following a tested growth trajectory, and were on their way to greater stakes in deep technology platforms.
Former Bharatpe Managing Director Ashneer Grover said that China too evolved from food delivery apps to deep tech. “It’s great to aspire to what they’ve done-but maybe time for politicians to aspire for 10%+ economic growth for 20 years flat before chiding today’s job creators,” he added.
Quick commerce platform Zepto’s founder Aadit Palicha wrote on LinkedIn that “Most technology-led innovation over the past two decades has originated from consumer internet companies. We need to build great local champions, not pull down teams that are trying hard to get there,” contesting Piyush Goyal. He also pointed out the economic impact that quick commerce sites like Zepto had created, saying, “Almost 1.5 lakh real people are earning livelihoods on Zepto today. If that isn’t a miracle in Indian innovation, I honestly don’t know what is.”
Former Infosys CFO Mohandas Pai also weighed in, requesting the minister to lend support and not create doubts about the capabilities of home-grown startups. “India has startups in all those areas [deep tech] too, but they are small. Minister Piyush Goyal should not belittle our startups but ask himself what he has done to help them,” he said in a combative tone.
Anupam Mittal, Shaadi.com founder and a regular on the popular TV show Shark Tank, rued the lack of capital and a favourable ecosystem. “In the last few months I have met a few deep-tech cos that have absolutely blown me away. From AI & space-tech to material science, Indian entrepreneurs are ready to take on the world. But capital & the ecosystem for growth & commercialisation are severely lacking. Founders can do most things but not everything,” he said.
How the Government Has Enabled Startups: A Snapshot of the Policy Changes
To its credit, the government has launched initiatives like Startup India and Make in India and offered tax incentives to boost the startup ecosystem – all these and more are geared towards simplifying regulations, improve access to funding and unleashing the innovative spirits. The Modi government has also doubled down on R&D, setting up the Anusandhan National Research Foundation with a budgetary outlay of INR 50,000 crores between the period of 2023-2028 to support basic research and prototype development at universities, colleges and research centres. In the recent budget, it has also announced its intentions of setting up a financial pool of INR 1 lakh crore (approximately $12 billion) for private-sector-driven research and innovation at a commercial scale.
In fact, India’s gross expenditure on R&D has galloped from INR 60,196.8 crore in FY11 to INR 127,381 crore in FY21, while it jumped 41 spots in the Global Innovation Index 2023 to claim the 40th spot in 2023. However, these are incremental gains and more needs to be done to create the exponential growth spurt that Piyush Goyal referred to during his speech. Greater investments in R&D to match global standards could be a great way to signal government’s intent, demonstrating its seriousness about enabling the Indian startup ecosystem.
Google’s Gemini, Meta AI and Amazon Web Services (AWS) AI Services have been the torchbearers of Generative AI technology. Microsoft Reportedly invested a whopping US$ 13 billion to acquire a 49% stake in OpenAI, heating up the AI race.
Indian startups have tasted considerable success in fintech, healthcare, e-commerce, retail, edtech and e-mobility with multiple unicorns (startups with valuations upwards of a billion dollars). Sectors like agritech, telemedicine and consulting, space exploration and defence offer new opportunities that Indian startups could tap better with a more robust AI infrastructure. However, India’s dismal track record of building Indian-owned intellectual property, especially in cutting-edge sectors like semiconductors and AI, remains a serious concern.
While the USA remains miles ahead in research and innovation in AI with companies like OpenAI, Anthropic, Google DeepMind and Nvidia Corporation that have budgeted and spent hundreds of billions of dollars to study and develop algorithms, China too has shocked the world with its recent successes with DeepSeek, which it claimed to have created at a fraction of the cost incurred by US-based firms. DeepSeek, the artificial intelligence company that develops large language models, is the latest entrant in the race for AI-based supremacy, putting more pressure on India to make its move fast.
Another challenge plaguing Indian startups is the misuse of funds and the lack of compliance and audits, which shakes investors’ confidence and damages India’s reputation. Case in point: the recent saga of the fraud and financial wrongdoings by the promoters of Gensol Engineering, one of the co-founders of app-based taxi service BluSmart. Securities and Exchange Board of India’s (SEBI) interim order stalled BluSmart’s operations after SEBI unearthed a massive diversion of funds for personal use.
While the central government and state governments can and must certainly do more to create an enabling environment for Indian startups, Indian angel investors and venture capital firms too need to look beyond successful business models that can be replicated in the Indian context and take more risky bets on AI companies that have lengthy gestation periods and are more prone to failure. These long-term bets can be gamechangers for them and for India’s future standing in deep tech. The clock is ticking!
