While India ranks as the third-largest startup hub globally, Pai warned that the country could lag in global innovation if these issues aren’t addressed.
”We have 1,65,000 registered startups, of which 22,000 have received funding. They have generated USD 600 billion in value, and we currently have 121 unicorns, with potential for 250-300 soonicorns.
”The primary challenge for startups is the scarcity of sufficient capital. For instance, China invested USD 835 billion in startups and ventures from 2014 to 2024, while the US contributed USD 2.32 trillion. In contrast, we invested only USD 160 billion, with around 80% possibly sourced from abroad. Hence, local capital is not emerging,” Pai remarked in an interview with PTI.
Pai indicated that, unlike the US, where insurance companies and university endowments are significant funding sources for startups, Indian endowments are restricted from investing in startups due to government regulations, and insurance firms remain mostly absent owing to incomplete regulatory reforms.
He proposed regulatory changes to enable insurance companies to participate in fund-of-funds, advocating for greater flexibility in their investment structures. Additionally, he recommended increasing the government’s fund-of-funds programme from ₹10,000 crore to ₹50,000 crore.
He also pointed out that India’s pension funds, amounting to ₹40-45 lakh crore, cannot invest in startups due to conservative approaches and restrictive regulations.
Pai highlighted the necessity of significantly boosting R&D funding in Indian universities and urged organizations like DRDO to make their technologies available to the private sector.
He noted that the current R&D expenditure in public universities falls far below international standards and is insufficient to foster substantial innovation.
”There is a need to eliminate barriers for startups trying to sell their businesses to government and public sector units… even with government reforms, the actual implementation is lacking. It needs to be more open, requiring a shift in mindset.
”The issue in India is that larger companies often pressure small startups, offering them less financial support and compelling them to sell their technologies, frequently delaying payments.
”This culture of undermining smaller entities must change,” Pai remarked.
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