This article is part of Inc42’s special year-end series — 2018 In Review — in which we will refresh your memory on the major developments in the Indian startup ecosystem and their impact on various stakeholders — from entrepreneurs to investors. Find more stories from this series here.
In the last 10 years, India’s foreign trade policy has transformed, with the country often enjoying the fastest growth in the world in terms of annual GDP growth rate. The Indian government has taken a slew of initiatives to boost exports and the year gone by shows this.
Although Prime Minister Narendra Modi’s frequent foreign trips — 41 trips to 59 countries — have drawn a lot of flak, the trips have purportedly helped increase and strengthen India’s international relationships.
India’s strong existing and newly-forged international trade relationships have rubbed off on the Indian startup ecosystem as well, and with resounding effect. Startup India is one of the flagship programmes of the Indian government, and it has benefited in many ways from PM Modi’s trips and his new foreign trade policy.
In his visits to Middle-east, Australia, UK, US, Japan, and many other countries, forged new bilateral partnership between Indian startup ecosystem and these countries.
Dozens of international agreements were signed involving entities in the startup ecosystem this year, including the UK-India tech partnership, Startup Konnect programme with the Silicon Valley, #StartupLink with Netherlands, India-Israel startup collaborations, Sino-Indian startup programmes, to name a few.
In this year-end special, we’ve bring you a recap of the international relations the Indian startup ecosystem strengthened this year.
India-UK: Brexit Helps Strengthen The Partnership
India and the UK have been trade partners for a long time. India chose to continue the partnership after its Independence on August 15, 1947 as well.
Today, the UK, with its $2.62 Tn GDP is the fourth-largest economy in the world while India, with a $2.6 Tn GDP, stands at number five. By 2030, India, is set to become world’s third-largest economy, ahead of Japan and the UK.
The UK has intensified its trade partnership with India since the Brexit announcement. The reason for this is that once Brexit is implemented, the UK’s access to the EU market will take a hit and India can be another lucrative market for the UK. Trade and investment between India and the UK increased by 15% in the last one year with a significant creation of jobs in both the countries.
In April, the two countries even signed the UK-India Tech Partnership to invoke synergies in the technology space with the aim of improving the lives of their citizens and boosting their economies.
After the US, EU, and China, India is the top trade partner for the UK. In its ‘Preparing For Our Future Policy’ after Brexit, the UK’s Department for International Trade stated, “We can also conduct trade reviews with the aim of strengthening a bilateral trade relationship by identifying options to overcome barriers to trade, improving our links in the immediate future, and laying the groundwork to develop future long-term trade relationship. For example, we are starting to undertake a trade review with India.”
As of 2016, the top exports from the UK to India are nuke, pearls, stones, metals, coins, electronic equipment, iron and steel, pharmaceutical products, and beverages. India’s exports to the UK are services, apparel articles, vehicles, and pharmaceutical products.
The UK-India Tech Partnership: Key Initiatives
- Tech Hub: To create more skilled tech jobs, increase tech R&D and investment
- Tech Cluster Partnership: To enable shared innovation and technology exchange. For instance, the Midlands Engine-Maharashtra Cluster & Northern Power House-Karnataka (AI and Data)
- Joint Healthcare AI Pilot: To align the UK’s AI healthcare solutions with Ayushman Bharat health reforms. The UK’s Department of International Trade and NITI Aayog came together to launch a £1 Mn programme
- Fintech Rocketship Awards: A chance to collaborate and raise funding for 40 fintech entrepreneurs from the UK and India annually
- Mayor of London’s IE20 business programme: 20 shortlisted Indian startups are helping expand their business in the UK
- Access India: The programme facilitates investments by UK-based small- and medium-scale companies in India
- MIDAS-Deloitte Fast 50 Partnership: MIDAS, the Manchester’s inward investment agency for Manchester, shortlists five Deloitte Fast 50 SMEs/startups and help them expand operations in the UK.
The UK government has also committed up to $48.4 Mn to the Indian startup ecosystem under the UK-India Fast Track Fund. The fund will be invested in fintech, edtech, agritech, healthtech, and technology-driven manufacturing startups.
The UK has also been negotiating Free Trade Agreements (FTA) with India, but the Indian government has been reluctant to go ahead with the discussions as it will likely wait till the Brexit terms are finalised between UK and EU. The UK is due to leave the EU on March 29, 2019.
India-US: Increased Synergies With Silicon Valley Via Startup Konnect
India-US relationship is as strong as ever. — Barack Obama, Former US President
There has always been a people-to-people and corporate connect between two of the largest and oldest democracies in the world — India and the US — resulting in a robust trade partnership between the two countries. In the past decade, however, India-US bilateral relations have developed into a strategic partnership, based on shared democratic values and increasing convergence of interests on bilateral, regional, and global issues.
According to the Ministry of External Affairs (MEA) of the Indian government, India-US bilateral trade in goods and services increased from $104 Bn in 2014 to $140 Bn in 2017. Out of $140 Bn, the two-way merchandise trade stood at $66.7 Bn. Of this, India’s exports of goods to the US were valued at $46 Bn and India’s imports of goods from US were valued at $21.7 Bn. Meanwhile, India-US trade in services stood at $47.2 Bn. Of this, India’s exports of services to the US were valued at $26.8 Bn and India’s imports of services from US were valued at $20.3 Bn.
In January 2015, during the-then US President Barack Obama’s visit to India, both countries made a commitment to increase the bilateral trade to $500 Bn. Further, as India announced a number of infrastructure-related mega-projects, including the Smart City project, Delhi-Mumbai Corridor, Bharatmala project, and more, in 2017, the largest-ever US delegation (comprising 120 members) visited India with a special focus on facilitating foreign direct investment (FDI), portfolio investment, capital market development, and financing of infrastructure.
According to the MEA, a US-India Infrastructure Collaboration Platform has been set up to deploy cutting-edge US technologies to meet India’s infrastructure needs.
For Indian startups, entrepreneurs, and entrepreneur-turned-investors, Silicon Valley (San Francisco Bay area) in the US has been mecca of inspiration. A large number of first-generation entrepreneurs started up in India based on their experience in the Valley or inspired by it from afar.
In a step further, Silicon Valley-based companies such as Intel, Google, NetApp, Cisco, Amazon and IBM have been harnessing Indian startups in India with their incubation programmes.
In order to keep the spirit of this collaboration alive, India’s premier trade bodies NASSCOM, TiE, and IIM-Ahmedabad’s CIIE India (Centre of Innovation, Incubation and Entrepreneurship) hosted the first India-US Startup Konnect (a bilateral startup exchange and collaboration programme) in Silicon Valley on September 2. to highlight the strengths of the Indian startup ecosystem. More than 30 Indian startups selected for this programme exhibited their products, prototypes, and achievements to investors and other potential Valley partners at the event.
India-Netherlands: Beyond A Corporate Partnership
In the aftermath of Brexit, a number of EU countries have come forward to encash the ‘London’ opportunities, with the Netherlands, Ireland, Finland, Germany and Estonia leading the race.
For the Netherlands, the Dutch companies Phillips and Unilever, which for long have been part of India’s DNA, made the road easier. The trade has been perfectly a balanced one as India ’s two top companies in their own sectors — TCS and Tata Steel — have been among the biggest employers in the Netherlands.
More than 200 Indian companies have already set up their bases in the Netherlands. The European country’s GDP, meanwhile, is completely dependent on foreign trade, which comprises more than 50% of its GDP. The Netherlands is also the sixth-largest FDI maker in India.
As both the countries commit to strengthening their trade relationship further, unlike, the US, the UK and China who have been more interested in corporate collaboration, the Netherlands has been primarily focussing on university exchange programmes, startups and the SMEs sector, promising a readymade infrastructure with the availability of incubation support and funding.
Focussing on the same, the Netherlands has also been organising the India-Holland Connect programmes at various cities of India for the last few years. The Netherlands seeks the contribution of Indian startups in the areas of logistics, cleantech, and medical science. After the Netherlands Foreign Investment Agency (NFIA) India invited Indian technology companies and startups to carry on their R&D related activities in the Netherlands, which already has a readymade and conducive infrastructure, the European country is now looking to join hands with Indian startups to catalyse its port-related developments.
In May this year, the two countries officially launched Indo-Dutch #StartUpLink platform to open-up the Indian and Netherlands market for startups from both the countries that are looking to expand to international markets.
The platform has been developed by Startup India in collaboration with the Netherlands Embassy that provides startups access to relevant information to networking, pilot opportunities, and many more. The Startup India Hub under Invest India and the Netherlands Enterprise Agency under the Ministry of Economic Affairs and Climate Change of that country will act as a single point of contact and the navigators for their respective countries.
Speaking to Inc42 during the StartUpLink launch, Dutch minister for foreign trade and development cooperation Sigrid Kaag had said, “Over 130 companies and 240 participants, this is a sign of our commitment. The MoUs have been signed in the areas of education (between the universities), waste management, health, water, food and agriculture, waste management, ecommerce, and fintech.”
India-Israel: Strengthening Over 2,000-Year-Old Relationship
The India-Israel partnership has a long, long history. Started in 500 BC, with Jews migrating to the Indian subcontinent, India recognised Israel as an Independent nation in 1950 while Israel opened an immigration office in Mumbai, which as the trade and bilateral relationship strengthened, was further made to a trade office and later a consulate.
Israel has always been one of India’s major defence partners, second only to Russia. From $200 Mn in 1992 (primarily in diamond trade), merchandise trade diversified and reached to $5.02 Bn (INR 36,500 Cr) (excluding defence) in 2016-17, with the balance of trade being in India’s favour by more than $1 Bn (INR 7271 Cr).
More importantly, Israel offers one of the best startup ecosystems in the world. This can be understood by the fact that as of 2017, Israel had about 4000+ startups, which had raised venture capital per capita at two-and-a-half times the rate of the US and 30 times that of Europe, according to a World Economic Forum report.
This year, the Israel Innovation Authority (IIA), an investment arm of the Israel government, launched a new pilot programme for Israeli startups to test their products in India.
Last year, the two countries had launched a bilateral innovation challenge called the India-Israel Innovation Bridge for startups in both the countries. The Innovation Bridge has selected six Israeli tech startups specialising in the fields of healthcare, agriculture, and water management. The programme is designed to help Israeli startups develop, adapt, and commercialise their innovation in the Indian sub-continent.
These initiatives were kickstarted last year when PM Modi and Israel prime minister Benjamin Netanyahu came together to launch the India-Israel Innovation Bridge, aimed at facilitating bilateral collaborations between startups, tech hubs, corporations, and other key innovation ecosystem players in both the countries.
Intel India and the Israel Consulate General have also collaborated to drive technology development and innovation by connecting startups and enterprises from both the countries. “Intel India will shortlist 50-100 Israeli startups in the course of next three years,” Intel India head Nivruti Rai told Inc42 at that time.
India-China: From Shaolin Kung Fu To Alibaba
We should keep on going along the path of globalisation. Globalisation is good… when trade stops, war comes. — Jack Ma, Alibaba
Be it the spread of Buddhism by Indian missionaries in 300 BC and afterwards or Bodhidharma, an Indian Buddhist monk, who spread martial arts, famously called Shaolin Kung Fu in Mainland China in around 500 AD, India and China share perhaps one of the oldest cultural relations in the world. And their trade partnership was a natural corollary of this relationship.
Since Indian Independence, the two countries, despite being on not-so-good terms, have been amplifying trade rapprochements year after year. For the past decade, both India and China have been the among the fastest-growing countries in the world, according to GDP growth rates.
The two countries signed a Trade Agreement in 1984, paving the way for the most-favoured nation treatment. In 1994, the duo entered into another agreement to avoid double taxation.
According to the MEA, in 2016, India was the 7th largest export destination for Chinese products, and the 27th largest exporter to China. India-China trade in the first eight months of 2017 increased by 18.34% year-on-year to $ 55.11 Bn. India’s exports to China increased by 40.69% year-on-year to $10.60 Bn while India’s imports from China saw year-on-year growth of 14.02 % to $44.50 Bn. The Indian trade deficit with China further increased by 7.64% year-on-year to $33.90 Bn.
From a startupper’s lens, India’s strategic investment partnership with China is the second-most crucial partnership after its relations with the US. In 2017, Chinese internet companies such as Alibaba, Fosun, Baidu, and Tencent invested a whopping $5.2 Bn (INR 378.1 Bn) in 30 Indian companies. The number is nearly a five-fold jump from the $1 Bn (INR 7271 Cr) that companies from China pumped into 41 Indian firms in 2016.
This makes China rank among the fastest-growing sources of FDI in India.
Chinese VC funds are scouting for the next big Indian internet investment. Nearly half a dozen such firms, including Tencent, Qiming Ventures, Morningside Ventures, CDH Investments, 01VC, and Orchid Asia Group are looking to buy stakes in Indian startups across financial and education technology, ecommerce, content and online classifieds.
Recently, furthering the Indian government’s agenda of fostering innovation and entrepreneurship among Indian youth, the Embassy of India in China, in partnership with Startup India Association (SIA) and Venture Gurukool, organised the 2nd Startup India Investment Seminar on November 12, 2018 in Beijing. The 1st Startup India Investment event was organised in November 2017.
According to global consultancy firm KPMG’s ‘India – China: Startups & Beyond’ report, “In 2017, Indian startups received $2 Bn from China, a growth of 3X as compared to the previous year. The surge in investments indicates an inclination of Chinese to shift or expand out of China to leverage the benefits of cheaper labour, new markets and less domestic vulnerability.”
Chinese angel investors Jor Law, Tang Yang, Yu Yongfu, and many others have now started aggressively investing in Indian startups. India-China bilateral trade has now reached to a new height of $84.4 Bn.
India-Japan: Looking Beyond SoftBank’s Ambitions In India
Similar to China, India’s ties with Japan started with Buddhism entering Japan back in 600 BC. Japan’s relations with independent India kickstarted in 1949 (after World War II) when India’s first Prime Minister Jawaharlal Nehru donated an Indian elephant to the Ueno Zoo in Tokyo and empathised with what Japanese had gone through (in the War). Japan signed its first-ever peace treaty with India and the two established diplomatic relations on April 28, 1952.
In 2015, Japan and India entered into an agreement for the execution of Mumbai-Ahmedabad 505-km high-speed rail corridor at the cost of $14 Bn (INR 98K Cr). Japan also announced facilitating the training 30K Indian people over the next 10 years at the Japan-India Institute for Manufacturing (JIM), providing them with Japanese-style manufacturing skills and practices as part of Make In India campaign.
Meanwhile, Japanese investment giant SoftBank, led by Masayoshi Son, has been investing aggressively in India in recent years. A majority of leading startups in the Indian startup ecosystem — including Ola, OYO and Paytm — have the Japanese investor as a major shareholder.
According to Inc42 Datalabs, Japanese investors channelled cumulative investments of over $8 Bn (INR 581.6 Bn) into the Indian startup ecosystem between 2014 and mid-2018 across more than 80 deals. It is interesting to note that over 45 unique Japanese investors have contributed to this investment volume.
Trade Wars And The Road Ahead
Despite increased international collaborations, not everything is as fine as one would expect it to be. Since Trump’s came to power in the US, a new trade and tariff war has emerged across the world, with the US trying to renegotiate the previously agreed trade terms with other countries.
This has also affected Indian startups adversely as the US has kept delaying the startup visa for Indians, a violation of International Entrepreneurship Rule (IER). While the US’s new protectionism policy has been affecting India directly, it is also expected to affect Sino-Indian trade adversely.
The latest US-China trade war has forced China to increase its export prices on numerous products. This, therefore, is also affecting Indian companies, including startups which are largely dependent on imports from China.
In the wake of ‘America First’ and ‘nationalism over internationalism’, the US’s withdrawal from the 2015 Paris Agreement on Climate Mitigation has also adversely affected international efforts with regard to cleantech and EV policies.
“Patriotism is the exact opposite of nationalism: nationalism is a betrayal of patriotism,” said French President Emmanuel while addressing the peace forum this year.
In another aftereffect of US policies, the melting rupee has added to startup worries. While launching its mobiles in September this year, Xiaomi global vice president Manu Jain told Inc42, “If the rupee continues to fall free, we will have to soon revise our prices.” Most product startups which buy raw material from abroad and operate on thin margins have been facing similar issues.
Despite some immediate barriers, with the transformed foreign trade policy 2015-2020, India’s export is expected reach $750 Bn by 2018-2019. India’s share in the world trade is also expected to double from 3% to 6%.
However, in the upcoming year 2019, the trade wars will continue to affect the global economy adversely and India will be no exception this time, unlike 2007, global economic slowdown.
[Edited by Prakriti Singhania]