India's Commitment To Financial Accessibility & It's Effect On Innovation

Each nation needs innovation to thrive. They aid in boosting the economy's competitiveness and achieving better GDP growth. The Indian equity market is number 4, having just overtaken the UK. The surge in market capitalisation results from not only an increase in stock prices but also takes into account new listings on the stock exchange.

A company with more market capitalization has few financial problems and has enough financial resources for investment (Kuvshinov & Zimmermann, 2021).

In recent years, equity-based fundraising has had a revolutionary impact on a wide range of industries, establishing itself as a dynamic accelerator for innovation. The fast growth of private startups, many of which are worth over a billion dollars, reflects the significance of funding to support groundbreaking innovations. Growth equity investment, which consists of a sizable cash infusion and a focus on existing businesses, has encouraged several companies to pursue game-changing technologies and experience fast expansion.

The Paytm Soundbox, a ground-breaking invention by Paytm, serves as a noteworthy example of the transformational power of finance on creativity. The ground-breaking Paytm IPO, the biggest in Indian history, led to the emergence of this game-changing invention. It addressed a significant issue that businesses had with getting immediate payment alerts. With multiple devices installed nationally as a result of this invention, it further cemented Paytm's supremacy in in-store payments considerably benefiting small and micro-businesses. The development of Paytm and its game-changing products that disrupt whole sectors make the inescapable connection between successful innovation and strategic capital raising. Paytm's Soundbox invention is a striking example of how capital can spur new ideas and transform how businesses operate.

The stock market is now in a slump, and prominent companies in the technology industry like Apple and Alphabet have seen their stock values fall by about 5%. Tech companies have shown resilience by producing record revenues and recovering stock losses in spite of obstacles including the possibility of artificial intelligence, rising interest rates, and industry-wide layoffs.

The number of tech businesses in the Forbes Global 2000 ranking climbed from 164 to 169 over the previous year, however, it is still significantly below the record of 177 in 2021. Nevertheless, the combined yearly income of these businesses increased from $4 trillion the year before to an astounding $4.2 trillion. Significantly, Alphabet has overtaken Apple and secured the top spot in the digital industry because of its steady cloud services and search division, which achieved record sales of $282.8 billion. With a 40% increase in its stock price this year, Microsoft took second place, thanks to its investment in OpenAI and its belief that AI will revolutionise software. Despite dropping to third place, Apple is still the most valuable business in the world despite competitors outpacing it in sales and assets.

A change in regional dominance was also seen in the tech industry, with 72 of the top 100 businesses being based in the US while China, Taiwan, and Japan retained their key positions. Over 8.2 million people are employed by these technology businesses, which have a market value of $15.8 trillion overall.

In order to sustain operations and foster growth in a fiercely competitive market, innovation and IP firms need access to capital. Access to capital is said to be the ability of businesses or individuals to obtain financial resources such as loans, credits, investments, etc. Utilising multiple financial instruments within a streamlined legal and regulatory framework is essential, as is securing the correct amount of capital at the right time.

Financial inclusion has faced challenges, such as the stigma associated with borrowing and high-interest rates. Governments, regulatory agencies, and corporate organisations have worked together to solve this issue by developing an open financial ecosystem within the country that is easy to use, safe, and cost-effective for individuals and companies. Digitalisation has played a vital role in enabling financial inclusion while maintaining transparency and control.

The Open Financial Index Survey, a joint project of the University of Oxford and Open Banking Excellence highlights India's outstanding accomplishments in the area of open banking and financial collaboration. India's highest cooperation score indicates a planned and effective strategy for promoting an open financial ecosystem. This achievement demonstrates the successful collaboration of several economic and technical sector stakeholders in India, including banks, fintech firms, regulators, and suppliers. The key to this accomplishment is India's extensive open banking environment, a legal structure that makes it possible for customers to securely share their financial information with approved third-party providers.

The graph below shows the market capitalisation data (Bombay Stock Exchange) from 24 May 2021 to 23 August 2023. There is a rising trend in India's market capitalisation. Bombay Stock Exchange (BSE) has crossed the mark of Rs 300lakh crore.

Innovation and intellectual property (IP) enterprises working in India will benefit significantly from the country's access to financing, financial inclusion, and open banking practices. These businesses stand to earn considerably as a result of the demand for resources to further research, development, and market implementation. These organizations have access to a variety of funding options, including venture capital and angel investments as well as loans and equity financing thanks to India's diverse financial landscape and well-organized regulatory environment. This variety fosters development and innovative initiatives, building a solid base for advancement.

The focus on financial inclusion and initiatives to lessen borrowing stigma ushers in a funding climate where innovation and IP enterprises may obtain capital without having to contend with high-interest rates or unnecessary obstacles. As of 31st May 2023, India is home to 108 unicorns with a total valuation of $ 340.80 Billion. The years 2021, 2020, and 2019 saw the birth of the maximum number of Indian unicorns with 44, 11, and 7 unicorns coming each year. So far in 2023, India has witnessed just one entry to the list, Zepto. The term unicorn refers to a privately held startup company valued at over $1 billion.

9 of the 24 unicorns introduced in the year 2022, per the study by  IVCA-Bain & Co., appeared in places other than the top 3 metro areas, pointing to a shift towards more regionally democratic funding. As a result, the percentage of venture capital going to businesses in non-metros increased to 18%. The research said that the SaaS (Software as a Service) and financial businesses kept the deal value as consumer tech fell, with several investors creating their largest-ever India-focused funds throughout the year.

Particular growth equity deals continued to draw the interest of private equity (PE) companies. Investments in Dailyhunt by CPPIB, ElasticRun by Goldman Sachs, and Amagi by General Atlantic were among notable transactions. This growing interest highlights how the Indian startup environment is developing. With over 80 active funds, the number of smaller venture capital (VC) funds has also increased. A few of these funds launched larger investment vehicles, including the $25 million Auxano Fund, the $55 million Artha Select Fund, and the first micro VC fund from Artha Capital. Additionally, the number of micro VCs with a concentration on particular industries, such as SaaS (Pentathlon) and gaming (Lumikai), increased.

Capital invested in a business or other entity that is not publicly listed or traded is known as private equity. Venture capital is money given to new companies or other nascent enterprises that have the potential to grow over the long term.

India's approach to accessible finance, financial inclusion, and cooperative banking has significant promise for stimulating economic growth and innovation. However, the possible outcome of this promise on India's innovation ecosystem, intellectual property environment, the rise of startups in non-metropolitan areas, and investment patterns are yet to be fully understood. The process of obtaining capital and equity, both of which are required for bringing innovative concepts to reality, is indisputably essential in fostering innovation. The inflow of funding helps organisations explore new territory and challenge standard practices by investing in research, development, and implementation of innovative concepts. The availability of significant capital allows innovators to improve and diversify their goods and provides them with plans for expanding into new domains. Effective means of mobilising money become critical facilitators in the dynamic environment of emerging technology and company models. These strategies ensure that inventive conceptions go from simply abstract notions to practical realities, ultimately impacting the future landscape of many businesses.

References:

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India adds 23 new unicorns in 2022, overtakes China for the second consecutive year: Report. (2023, March 15). The Hindu. https://www.thehindu.com/business/Industry/india-adds-23-new-unicorns-in-2022-overtakes-china-for-the-second-consecutive-year-report/article66622705.ece

Jonathan Poncian. (2023). The World’s Largest Technology Companies In 2023: A New Leader Emerges. Forbes. https://www.forbes.com/sites/jonathanponciano/2023/06/08/the-worlds-largest-technology-companies-in-2023-a-new-leader-emerges/?sh=79fa8fcb5d1d

Nikhil Agarwal. (2023, July 6). How India's market capitalisation skyrocketed 30 times in 20 years. The Economic Times. https://economictimes.indiatimes.com/markets/stocks/news/how-indias-market-capitalisation-skyrocketed-30-times-in-20-years/articleshow/101536099.cms

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Sudha Rangarajan. (2023, February 12). Indian enterprises and digital financing: Unlocking access to capital. ETBFSI.com. https://bfsi.economictimes.indiatimes.com/news/financial-services/indian-enterprises-and-digital-financing-unlocking-access-to-capital/97805417

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