By Appalla Saikiran, Founder and CEO, SCOPE
India’s startup ecosystem has, by definition, been associated with its metro cities—Bengaluru, Mumbai, Delhi-NCR, and Hyderabad—where talent, venture capital, and infrastructure converge. These have spawned unicorns, set global technology narratives, and attracted global attention. And yet, perhaps the future generation of startups that revolutionize the nation may emerge from Tier-2 and Tier-3 cities, powered by latent talent, homegrown innovation, and a growing entrepreneurially aspirational middle class outside the metros. Policymakers will have to reimagine and reconfigure existing models to make entrepreneurship inclusive and geographically diverse to unlock this potential.
Closing the Infrastructure Gap
Infrastructure remains one of the largest startup challenges for Tier-2 and Tier-3 cities. While metros offer co-working spaces, accelerators, and fast internet connectivity, Tier-3 cities lack even the latter. Policy efforts can be of the nature of incentives for creating startup ecosystems in small cities, building affordable office space, and providing world-class digital infrastructure. Initiatives such as the Digital India program have enhanced connectivity, yet even targeted support for entrepreneurial infrastructure in the way of incubation centers and local mentor networks can drive ecosystem creation.
Access to Capital Outside the Metros
Venture capital and angel funding continue to remain mostly based in metro cities and leave potential entrepreneurs in smaller towns underbanked. Policy makers might introduce regional venture funds with a particular interest in startups outside the conventional hotspots. Co-investment funds, investment in non-metro startups with investor tax incentives, and independent public-private partnership (PPP) funds will ensure continuous flows of funds. Early-stage investment democratization opens the possibility of smaller cities growing startups that can address regional as well as national issues.
Simplification of Regulatory Regimes
Regulatory and compliance hurdles hit low-resource startups disproportionately, especially in small towns. Simplified registration processes, one-window systems for clearance, and electronic regulatory submissions can go a long way in reducing friction. Policy also needs to provide for regional variation in enforcement and to assist in the setting up of local help centers. Simplified processes not only induce new entrepreneurs but also allow them to grow quickly without the bottleneck of bureaucratic delays.
Skill Development and Talent Holding
Availability of human resources is another major problem. Metro hubs lure high-skilled professionals with educational centers, IT hubs, and thriving job markets. Although, Tier 3 with qualified graduates, suffer from “brain drain” as youths move to metros. Policymakers can promote skill classes, entrepreneurship learning in local colleges, and centers that impart digital, managerial, and leadership skills to young professionals. Tax incentives to poach locally from startups, as well as incubation schemes, are planned to retain manpower in such new hubs.
Fostering Local Innovation and Problem-Solving
Small-town start-ups are most likely to stay close to problems with roots in the local community, such as agriculture, logistics, local health, and education. Policy intervention that encourages local innovation, such as challenge competitions, innovation festivals, and grants, can catalyze solutions tailored to local problems. Encouraging start-ups in the agri-belts or health-tech start-ups in the rural sector, for example, they can facilitate the emergence of highly impactful start-ups with regional economic development.
Access to State-Level Entrepreneurship Initiatives
Some states have created entrepreneurship-driven policies such as Maharashtra’s Startup Policy or Karnataka’s Elevate Karnataka. Having those kinds of policies in a national initiative can give level playing fields in support systems for startups, eliminating uncertainty for the founders. It can create equalizers in the form of “startup corridors” between the Tier-3 cities and the metro cities to facilitate ease in knowledge spillover, mentoring, and market entry.
Digital Media as Levelers-
Lastly, the Internet helps to go beyond geographies so that even Tier-3 startups can tap customers, partners, and investors in India and internationally.E-commerce-friendly policies, payment infrastructure, and compliance for digital regulation can make Tier-3 startups competitive nationally. Fostering digital literacy programs implies that the entrepreneur not only gets access to technology but can use it strategically for growth.
