Are Indian Startups Stuck With Delivery Apps or can they innovate like China?

Are Indian Startups Stuck With Delivery Apps or can they innovate like China?

KAKALI DAS

Minister of Industry and Supply of India, Piyush Goyal, recently criticized Indian startups, accusing them of prioritizing delivery services over innovation, and asked if India is destined to create “ice cream and delivery boys” instead of semiconductor chips.

He lamented that only around 1,000 startups are in the deeptech space, arguing that the gig economy is creating low-paying jobs rather than technological breakthroughs, especially in comparison to China.

This isn’t his first clash with industry. In 2021, he targeted the Tata Group and other large businesses, accusing them of pushing for self-serving policy changes and not working in the national interest.

His recent comments drew sharp backlash. Zepto Co-founder Aadit Palicha responded that Zepto, launched just 3.5 years ago, now provides livelihoods to 1.5 lakh people and has brought in $1 billion in FDI. He asked whether the government is offering sufficient support—citing power shortages, bureaucratic harassment, and corruption as major hurdles.

Mohandas Pai, former Infosys CFO and prominent investor, delivered one of the harshest rebukes. Known for his otherwise pro-government stance, Pai criticized Finance Minister NirmalaSitharaman for a hostile policy environment, especially around angel tax. He noted India has only invested $160 billion in startups over the last decade, compared to China’s $845 billion, and pointed out the lack of investment channels like endowments and insurance companies.

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Other founders echoed these concerns. Ashneer Grover said that politicians should aim for 10% of China’s growth instead of targeting entrepreneurs. Anupam Mittal of Shaadi.com added that India’s capital ecosystem is underdeveloped, and while founders can do a lot, they can’t do everything.

India’s startup ecosystem, according to government data from the Department of Promotion of Industry and Internal Trade (DPIIT), boasts over 1.59 lakh registered startups, making it the third-largest in the world. The country is home to over 100 unicorns, and startups have created over 16 lakh direct jobs, primarily in IT, healthcare, life sciences, and professional services. While this job creation is significant, it remains relatively small in a country with a population of 1.4 billion.

While the minister now criticizes the gig economy as a source of low-paying jobs, claiming startups are turning India’s youth into delivery workers, it’s important to note that this wasn’t always the government’s stance.

In the periods before COVID, after demonetization, during the pandemic, and even post-COVID, the government consistently promoted the gig economy as the future of work—highlighting it as a valuable source of employment, entrepreneurship, and job creation through startups and self-employment.

There is clearly a marked shift in the government’s tone now, suggesting that it views the gig economy phase as complete, and believes it’s time to aim for a more advanced, innovation-driven stage of economic development.

For decades, India and China have often been compared due to their similar characteristics: large populations, self-sustaining economies, a young and employable talent pool, rapid digitization, and venture capital inflows. The comparison extended to GDP growth, manufacturing sectors, and technological development.

At one point, the prevailing view was that China would focus on manufacturing, while India would excel in services, especially as India’s tech sector began booming. This era saw significant growth in tech, with India becoming a hub for back-office processing, BPOs, and offshoring. India’s success in the tech sector helped it position itself alongside China in the global race for economic power.

By 2024, it’s clear that China has surged far ahead, creating a significant gap between the two countries. Chinese companies like Alibaba, Tencent, and ByteDance (which created TikTok) have emerged as global leaders in their respective domains. In contrast, India’s leading companies primarily serve the domestic market, without comparable global reach.

China has also taken the lead in cutting-edge sectors like battery and EV technology with companies like BYD, CATL, and NIO setting global benchmarks. DJI Technology Co. Lt. has revolutionized drone technology, becoming a dominant global player. DeepSeek recently stunned the tech world with innovations that caught even the U.S. off guard. BYD is now competing directly with American giants like Nvidia and Tesla—and in some areas, surpassing them.

What was once seen as an India-China race has now evolved into a China-U.S. face-off, with India largely side-lined in that global competition. This widening gap is at the heart of the current comparisons and concerns.

An insightful article in Business Standard points out that China’s dominance is no accident—it’s the result of deliberate government policies and a system carefully structured to support innovation and scale. China has invested aggressively, and its domestic market is designed for massive scalability.

A key factor Is China’s closed digital ecosystem. By keeping out global tech giants like Google, WhatsApp, and other American companies, China created space for home-grown alternatives to thrive. This protective strategy has pushed Chinese entrepreneurs to innovate independently and build world-class platforms.

This starkly contrasts with India’s open market, where foreign companies dominate major sectors. The fundamental difference in market structure may well explain why China has managed to foster such deep innovation, while India continues to rely heavily on external platforms and ideas.

By 2023, China accounted for 40% of global venture capital funding, while India received just 5%. Between 2015 and 2025, the Chinese government committed $1.4 trillion to tech investments, while India’s allocation for the same period was around $150 billion—a massive disparity.

China also slashed taxes and fees for tech companies, making R&D financially viable and incentivizing innovation.

Both India and China have massive populations, making them ideal testing grounds for technology. However, when comparing buying power, the gap is striking: Alibaba’s single-day sales in 2024 reached $203 billion, while India’s entire e-commerce market was valued at $147 billion.

TikTok, developed by ByteDance, reached a billion users before even entering Western markets—something no other country has achieved.

Chinese startups have raised venture funding that far outpaces anything India has secured. The Chinese government has also prioritized investments in space technology, high-speed rail, and renewable energy, creating an infrastructure that supports large-scale R&D and innovation.

In India, there has been a clear focus on digital services, while China has prioritized manufacturing. This division can be traced back over the last 30 years, with India settling into its role as a service-based economy and China becoming the global manufacturing hub.

In 2024, India’s deeptechstartups received $1.6 billion in funding, while China’s VC investments in AI and semiconductors alone reached $12 billion.

India’s startup ecosystem has thrived in sectors like food delivery, digital payments, and online services. India’s UPI digital payment system, fintech loans, and other related services, such as online trading in the fintech space, have flourished. Companies like Zomato and Swiggy have revolutionized food delivery, making a significant impact. In contrast, China has concentrated its efforts on deeptech, AI, and space technology, highlighting the distinct focus areas between the two countries.

One of the key challenges limiting innovation in India’s startup sector is funding. China has managed to corner the global investment market in deep tech, AI, and semiconductors, while India has struggled to attract similar levels of funding in these critical areas.

Another major issue is Research and Development. Despite having one of the highest numbers of engineering colleges in the world and producing a large pool of engineers, R&D has never been India’s strong suit. Many talented individuals who are serious about research end up moving abroad to pursue their work. The problem isn’t a lack of talent—it’s that the talent isn’t staying in India.

China, by contrast, has about 2.2 million R&D workers, while India has around 900,000. We’ve produced the engineers, but we haven’t built an ecosystem that supports or retains research and innovation.

India’s venture capital landscape is largely focused on low-risk, high-reward consumer apps, with an emphasis on rapidly acquiring customers to dominate the market. Funding in India tends to follow trends—whether it was the boom in EdTech or the recent surge in Generative AI investments.

However, true innovation requires funding that sustains long-term projects without pressuring founders to chase quick market dominance. SpaceX, for instance, didn’t materialize overnight; it required consistent funding and time for scientists to innovate.

Besides, India’s government structure often hinders startups. Initially, funding received by startups was treated as income and taxed accordingly, creating significant challenges. Although the government has recently relaxed this policy, it remained an issue for many years.

The regulatory environment is also highly complex, with multiple hurdles such as RBI and FEMA guidelines, sector-specific FDI caps, KYC, anti-money laundering regulations, and other compliance checks. This intricate bureaucracy leads to delays and causes paperwork to get stuck in various stages.

There are significant challenges surrounding employee stock options in India, primarily due to taxation, which makes it difficult for startups to effectively incentivize and retain talent. Capital gains tax is another hurdle. Also, there are overlapping compliance requirements across various bodies—Ministry of Corporate Affairs, income tax, GST, labour laws, environmental regulations—and even local municipal authorities, each bringing its own set of complications.

As a result, startup founders often find themselves bogged down in administrative and regulatory work, diverting precious time and energy away from building innovative products and scaling their businesses.

There’s also a lack of clarity around cross-border transactions, double taxation, and the interpretation of foreign investments—making it hard to predict how incoming funds will be treated. For investors, exit options are often limited by regulatory constraints, which creates further hesitation in funding Indian ventures.

To sum up, both perspectives in this debate hold weight—Minister Goyal is right in asserting that we need more innovation, and startup founders are equally justified in asking for structural support to help them achieve it.

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