One of the major strides of the past few years that the pro-establishment corner claims and the anti-establishment corner grudgingly agrees upon is the boom in startups across sectors in India, mainly in its cities. Just this week, the launch of a startup channel catering specifically to the entertainment needs in Bhojpuri, among a clutch of central Indian languages, created quite a flutter. Yet, behind the glam of narrative and buoyancy is an aspect of India’s startup story that few care to pay attention to—closures and shutdowns. The startup ecosystem registered a massive 12-fold increase in the shutdowns, with over 28,000 of them closing shop in 2023-24 from only 2,300 shutting shop in 2019-22, reports state. Many of those that closed down in the past year filed for bankruptcy or had been inactive for some time. The central government seems oblivious or wilfully ignorant, given that minister Jitin Prasada told the Parliament in December last year that only around 5,000 of those registered with 'Startup India' had shut down.

Alongside the shutdown, the pace of the launch of new startups has also slowed down from an impressive 9,600-plus every year in 2019-22 to barely 5,000 last year and a few hundred so far this year. The trajectory of the startups matters to the Indian economy because of the promise of job creation that they offer and the maturing of the services sector that they represent. And it matters to the world because India’s vibrant and crowded startup space is seen as the world’s third-largest and promising. Whether the trajectory represents early signs of failure of the startup ecosystem itself or a badly needed correction in the system is up for debate; a lot depends on the perspective of the analysts rather than objective information.

Most of the shutdowns were in agritech, edtech, healthtech and, of course, fintech startups—all high-growth sectors. At this stage, what is called for is a clear-eyed evaluation of the ecosystem and reasons for the closures. If startups, which got massive funding during a buoyant market, are now waking up to the reality of making it count, then the correction is welcome. If the startup ecosystem is burning out because of factors ranging from a mindless innovation and growth-at-all-costs approach to a lack of substantive support from the government and systemic roadblocks such as valuation and taxation issues, then these need to be addressed. The introduction and rapid embrace of AI in the sectors that startups occupy have further upped the challenge quotient. India’s startup story needs more ingenuity than ever.