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India’s tech cities and innovation ecosystems: are they nearly there yet?

In many places around the world, the topics of innovation, start-up ecosystems and entrepreneurship have become common and fashionable areas of discussion. Almost everyone has debates around how to encourage innovation, how to grow the start-up ecosystem, how entrepreneurship can be encouraged and how entrepreneurial activities can be nurtured to grow. Having just spent some time in India talking to some of the players in this ecosystem and attending conferences, India is no different.

There’s no shortage of daily news on these subjects, with some activity or another that moves its tech cities like Bangalore, Pune, Hyderabad and others closer to emulating Silicon Valley in some ways (see the Mashable article on Pune).  Just in the last week, mobile start-up accelerator Tandem Capital announced it was launching in Bangalore, India, and will back up to 20 early stage ventures with seed capital of US $200k each. Last year, Startup Village was opened in the city of Kochi, in Kerala state, an incubator with 1Gbps internet connectivity, to encourage telecoms and IT start-ups.

Startup Village aims to incubate 1,000 telecoms product start-ups over 10 years, with at least one being a $1 billion company started from a college campus. Dreaming of being a ‘Silicon Coast’, Startup Village will create an ecosystem and provide a platform for start-ups to create breakthrough technologies for the global telecommunications Startup Village Kochi logoindustry, focusing primarily on student start-ups from college campuses. The village provides several incentives, including a three-year service tax exemption, its own angel fund, and many other services on reduced or no fee basis – like IP strategy, infrastructure, and legal services.

While there’s lots of momentum in India, there are still gaps in the ecosystem. According to Paula Mariwala of Seedfund, speaking at a seminar on entrepreneurs and opportunities in India at Stanford University earlier this year, she said early stage investing is still far from mainstream, and there are several roadblocks – like lack of early adopters of products and services, access to technology and talent, and lack of a support system due to being a risk averse culture. On the latter point, it’s widely known that Indian students are invariably encouraged to study engineering, medicine, law, and commerce, and then get ‘safe’ jobs rather than go into business.

Mariwala says they can only replicate Silicon Valley in India by fixing the education system in India, since there are currently poor links between industry and academia across various sectors. The country also needs more role models and M&As. Good examples of Indian-born start-ups for the Indian market include Flipkart, Redbus, Inmobi, Makemytrip.com, naukri.com, and several others.  These are hence providing some role models for other would-be entrepreneurs, but more are needed.

Beyond the quick exits

While the investors are chasing entrepreneurs and start-ups in the internet and cloud space for potential quick returns or exits, long-term vision on innovation is also being looked at. India’s president, Pranab Mukherjee, said last month that India needed to spend more money on innovation. He said that both public and private sector spending on innovation should be comparable to the levels spent in countries such USA, China, Japan, South Korea, Israel and the UK.

Quoted in The Hindu newspaper, he said “India spends only 0.9 per cent of GDP on research and development,” and that, in a globally competitive world, India had to unleash its innovation potential to increase capacity, productivity, efficiency, and inclusive growth. “The spirit of innovation has to permeate all sectors of economy from universities, business and government to people at all levels.”

The lack of technology innovation in India could be the reason why Indian conglomerates like Tata look overseas to invest in ground breaking technology research for commercialization and to produce the ‘next big thing’. Tata recently invested US $5 million into a fund at Israel’s Tel Aviv University, in its technology transfer company. According to the university, a Tata delegation of 13 scientists visited to see more than 70 technologies in the process of evaluation, and concluded that the structure would fit well with their innovation strategy.

While technology innovation might not be India’s forte, it does not necessarily mean India doesn’t have its own areas of innovation – for example, just last month, an Indian scientist made a major breakthrough in developing a $1 vaccine for the prevention of diarrhea. This could save the lives of thousands of children all over the world, as the current vaccine is available only at almost 20 times that price.

In summary, India’s new tech cities like Bangalore, Pune, and Hyderabad are emerging as thriving tech start-up ecosystems, but lack some of the innovative thinking and role models needed to make them really successful start-up ecosystems on the global stage. The examples of investment in real innovation potential, as we’ve seen from Tandem Capital and Kochi’s Startup Village, means that there are initiatives that would potentially lead to some parts of India generating a thriving Silicon Valley-like ecosystem.

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