Despite a few hiccups and difficulties both at macro and micro level, India’s startup ecosystem has grown to become the third-largest in the world. Now, a report by the Global Entrepreneurship Monitor (GEM) has placed India on the fourth position out of 51 countries in terms of high-quality entrepreneurial ecosystem.

This is a significant improvement for India on the rankings from 2021, when the country stood at 16th position in the ‘National Entrepreneurship Context Index (NECI)’.

GEM is a networked consortium of teams from different countries, primarily associated with top academic institutions. It carries out survey-based research on entrepreneurship and entrepreneurial ecosystem.

For the NECI survey, the quality of a national entrepreneurial environment is assessed by experts from that economy on 13 different parameters, called as Entrepreneurial Framework Conditions. These parameters include finance, access, policy, infrastructure, among others.

The NECI rankings are based on scores on framework conditions of each of the 51 participating economies.

India scored 6.1 in 2022, an increase from scores of 5.0 in 2021, 6.0 in 2020, and 5.8 in 2019.

The report called the fall in India’s score in 2021 a severe, but temporary, shock to the Indian entrepreneurial environment, with all 13 framework conditions scoring lower in the year compared to previous year.

In 2020, India scored more than ‘sufficient’ on all the framework conditions. While India’s score on seven parameters was rated as ‘insufficient’ in 2021, the country scored ‘sufficient’ in all these framework conditions in 2022.

“These changes, many of which were considerable, both in the fall from 2020 to 2021 and in the recovery from 2021 to 2022, suggest a high-quality entrepreneurial environment but one that is very fragile and far from resilient,” the report said.

How Do Young Indians See Entrepreneurship?

The report also mentioned the results of the Adult Population Survey (APS), which saw participation from more than 2,000 people in India.

One of the key motivations for entrepreneurship in India is “to make a difference in the world” (81%), while “continuing a family tradition” (67%) is another important motivation driving entrepreneurship.

However, Indian adults expecting to start their own business in the next three years fell from more than a third in 2019 to just a fifth in 2022 which could be attributed to the impact of the pandemic as almost three in four adults in India reported that the pandemic reduced their household income in 2022, the report said.

Confidence in one’s own ability to start a business, although still relatively high, fell to 78% in 2022 from 85% in 2019.

The proportion of adults who see good local opportunities to start a business fell slightly from three in four in 2022 to four out of five during 2019-2021.

The proportion of new entrepreneurs expecting to use more digital technologies in the next six months to sell their products also halved in the year to 2022 to three in 10 respondents from six out of 10 respondents in 2019-21.

“This is concerning if the pace of recovery is to be maintained. Just one in seven of those starting or running a new business in India in 2022 expected to employ another six people or more in the next five years,” the report added.

The report comes at a time when led by the government’s push and increasing digital penetration, the number of startups in the country increased to 84,102 as on November 30. The country is also home to 108 unicorns. However, the macroeconomic headwinds have resulted in a sharp decline in the funding raised by Indian startups. Consequently, Indian startups have laid off over 22,000 employees since 2022.