Start-ups play crucial role, giving growth impetus to economy: KPMG report

The recent 'slowdown' in the Indian economy notwithstanding, start-ups are emerging and playing a crucial role of not only sustaining but also giving growth impetus to the overall economy, a KPMG report has said.

The report titled "Fintech and Start-ups Fuelling India's $ 5-trillion economy" was released by Tamil Nadu Chief Minister K Palaniswami at 'CII Connect' here on Thursday.

There was no dearth of capital flowing in in the start-up economy, it said.

The report said the golden triangle of government, private sector and academia are important players who can provide the impetus needed to grow the start-up eco system.

The 'slowdown' in the economy could be partly blamed on credit crisis due to NBFC (non-banking financial companies) funding being 'dried up' and the banking system's continued struggle with NPAs (non-performing assets), it said.

With liquidity being sucked out of the system there has been a near complete breakdown in the investment cycle, the report said.

Traditional businesses that relied on banks for funding significant portions of their planned capex were holding further investments.

This is where start-ups were emerging and playing the crucial role of not only sustaining but also giving a growth impetus to the overall economy, it said.

"There has been no dearth of capital flowing in the start-up econonmy, with $ 7.67 billion flowing in in just three quarters of 2019. There were 21 fundings that crossed the $ 100-million mark," the report noted.

The country was placed third in the global start-up eco system, with the sector witnessing the emergence of at least 29 'unicorns' - companies that are valued upward at $ one billion - it said, even as the eco system was generating huge numbers of direct and indirect job opportunities.

Start-ups were 'disrupting' the way old businesses worked, setting up businesses across fintech, agri tech, Ed Tech and healthtech.

Fintech companies, the report said, were playing an important role by providing easy credit options to MSMEs.

MSMEs, which have historically struggled to gain credit from the traditional banking system with only six per cent of the total lending going to the sector, have now found new ambits of formal lending through fintech companies.

Fintech start-ups were now adopting advanced technology like data analytics to determine creditworthiness of potential borrowers, leading to faster turnaround to disbursing loans to MSMEs, it said.

"As per a recent survey by the Confederation of Indian Industry (CII), MSMEs have created additional jobs between 13.5 million and 14.9 million per annum over the last four years," it added.

As a way forward, the government should create vehicles for start-ups to go global, besides breeding a culture of innovation by involving the corporate sector.

The private sector, for its part, needs to collaborate with universities and sponsor research and development, it said.

Further, the academia must make research an intrinsic part of its existence by allocating more funds towards scholarship and research, it said.

KPMG is one of the largest professional service companies in the world.