Decoding The Growth Potential Of India’s Green Tech Startups

The 2023 Budget prioritised green technology, with the government highlighting the need to build momentum to reach India’s Net Zero targets by 2070. The ‘Lifestyle for Environment’ or ‘LiFE’ movement is its proposed vehicle for this.

It would begin with a number of government initiatives, including a Green Credit programme under the Environment Protection Act, a Green Hydrogen Mission, and other initiatives. These measures demonstrate that green technologies are no longer viewed solely as necessary to protect the environment, but also as economically beneficial. 

The government’s emphasis on sustainability could not have come at a better time. India has a fantastic opportunity to become a dominant force in green technologies. It is crucial for the government to provide substantial support to foster the growth of green tech startups. 

These startups will develop technologies to capitalise on the potential of India’s manufacturing sector, which is currently on the rise. This trend contrasts sharply with the recent wave of layoffs at major IT companies such as Amazon, Microsoft, and Accenture. 

A recent survey by FICCI showed that 70% of manufacturing capacity is being utilised, suggesting sustained economic activity in the sector. More importantly, 40% of respondents indicated plans to increase capacity. This stands in stark contrast to the recent layoffs in 2023. Tech layoffs in the first three months of 2023 have already surpassed those in the entire year of 2022. 

India can leverage the potential of its thriving tech startup ecosystem to establish globally competitive industries in electric vehicles (EVs), alternative energy, carbon capture, energy efficiency, and other critical technologies by making the right strategic decisions.

Focusing On Startups And R&D

Particular attention needs to be paid to tech startups in this endeavour as well as overall efforts to improve research and development (R&D) capacity. This dual track will help India meet its green targets for net zero, EV adoption, and renewables. 

Innovation is the need of the hour. It is not enough for products to be Made in India; they must also be Designed in India. This will ensure that the sector’s value creation is entirely captured on Indian soil. More importantly, a robust R&D pipeline will shift Indian manufacturing from being reactive and executing the designs of others to being proactive and setting the pace of innovation.

The recent budget announcement has provided a boost to existing government schemes targeting tech companies and startups, such as Production-Linked Incentives (PLIs) and sector-specific schemes like the Faster Adoption and Manufacturing of Electric Vehicles II (FAME-II) for EVs. 

The emphasis on supporting startups in logistics, infrastructure, and financial services is a welcome addition to the existing framework. Green credit programmes are also a step in the right direction, encouraging businesses to adopt sustainable business and construction practices that will result in increased energy efficiency.

Navigating Challenges In Funding & Government Programmes

However, startups face challenges that prevent them from fully utilising these schemes. PLIs, for example, are geared towards larger companies and have minimum investment requirements that may be out of reach for startups.  The government must take a more nuanced approach to ensure that these programmes are accessible to startups while also remaining effective. 

Ultimately, it is a chicken and egg problem. Startups lack the scale to invest but frequently struggle to find funding until they reach scale because traditional lenders are often hesitant to invest in early-stage companies. The budget announcement of an INR 10,000 Cr fund for startups is a positive step in this direction, but more needs to be done to ensure that funding is available to all startups, regardless of size or stage of development.

When it comes to R&D, one major challenge that startups face is competing with the resources of established companies. Often, startups lack the resources to invest in R&D, which is critical to their long-term success. 

The government can assist startups by providing funding and partnering with academic institutions and research centres. The announcement of three Centres of Excellence for AI research is a step in the right direction. Hopefully, more such centres will open with different areas of specialisation.

Despite these challenges, the potential of tech startups to drive economic progress and establish competitive local industries cannot be ignored. More support in critical areas will be required to fully realise the sector’s potential. Ensuring that funding is accessible to all startups, regardless of their size or stage of development, and providing support for R&D will be pivotal right now. The government will need to take a nuanced approach to ensure that existing schemes are made more accessible to startups without compromising their effectiveness. With the right support, India’s tech startups can be a driving force for economic progress and local industries.