<p>India’s startup narrative is often framed around valuations, funding cycles, and unicorn counts. As a finance professor, I would argue that this misses the more enduring economic contribution of startups. Their real value lies in labour-market transformation: formal job creation, skill formation, and productivity spillovers that extend well beyond the startup sector itself. As Union Budget 2027 approaches, this distinction matters. If startups are to support sustainable growth, talent policy must move to the centre of budgetary priorities.</p><p>The numbers already justify this shift. The Department for Promotion of Industry and Internal Trade (DPIIT)-recognised startups increased from a few hundred in 2016 to over 1.5 lakh by the end of 2024. These startups have reported more than 17 lakh direct jobs, concentrated in IT services, healthcare and life sciences, logistics, and professional services. While self-reported figures have limitations, the scale is now macro-relevant, particularly because these jobs are largely formal, skill-intensive, and linked to productivity-enhancing sectors.</p><p><strong>Talent circulation, not failure prevention</strong></p><p>Equally important is the churn within the ecosystem. Official disclosures show several thousand recognised startups have shut down over the past few years. This is not a sign of failure, but of a functioning innovation economy where experimentation, exit, and reallocation are integral. The policy challenge is not to prevent startup failure, but to ensure that talent circulates efficiently across firms and sectors, allowing skills to compound, rather than reset.</p><p>This brings us to the central constraint facing India’s startup economy. Capital availability fluctuates with global cycles. Talent constraints are structural. Startups consistently report difficulty not in hiring graduates, but in hiring job-ready professionals with problem-solving ability, product orientation, and cross-functional skills. From an economic perspective, this reflects a mismatch between the supply of educated labour and the quality specifications demanded by high-growth firms.</p><p><strong>Three talent priorities</strong></p><p>Budget 2026-2027 should, therefore, treat talent as economic infrastructure, much like physical or digital public infrastructure. Three pillars deserve particular attention: skills pipelines, labour mobility, and talent access.</p><p>First, skills pipelines must be aligned with labour-market outcomes. India has expanded higher education rapidly, but curriculum responsiveness remains uneven. Public spending on skilling is often supply-driven, with limited feedback from employers. A more effective approach would link a portion of funding to measurable outcomes such as placement in relevant roles, retention beyond a minimum period, and wage progression. This logic is consistent with accreditation and assurance-of-learning frameworks, which emphasise demonstrated outcomes rather than inputs.</p>.<p>Second, labour mobility requires better risk-sharing. Startups increasingly hire mid-career professionals transitioning from IT services, BFSI, manufacturing, and consulting. These transitions involve income volatility, uncertainty around equity compensation, and gaps in benefit portability. The Budget can reduce these frictions through regulatory clarity rather than large fiscal outlays.</p><p>Equity compensation illustrates the issue well. ESOPs are central to startup hiring and retention, yet India’s taxation framework imposes a tax at exercise, even when no liquidity event has occurred. This discourages both employers and employees from using equity meaningfully. Aligning taxation more closely with cash realisation would strengthen retention incentives, improve startup balance sheets, and reduce distortion in compensation design, without significant revenue loss.</p><p>Third, talent access must include selective global mobility. Every major startup ecosystem complements domestic talent development with fast-track access to scarce skills. Canada’s Global Talent Stream commits to processing work permits in approximately two weeks for specialised roles. Singapore’s Employment Pass system uses clear salary thresholds and points-based assessment to attract high-quality talent. The United Kingdom’s scale-up visa targets fast-growing firms with specific skill needs. India does not require broad liberalisation, but a narrow, predictable channel for frontier skills in areas such as semiconductors, cybersecurity, deep AI, and biotech.</p><p><strong>Talent policy is a long-term growth policy</strong></p><p>Talent policy also has wider productivity implications. Startup employees carry modern processes and managerial practices into the broader economy, including MSMEs and traditional firms. These spillovers raise aggregate productivity, and are among the highest-return public investments available.</p><p>Fiscal prudence remains essential. Talent-focused reforms need not be fiscally extravagant. Many are regulatory in nature, while others involve reallocating existing spending towards outcome-linked mechanisms. What is required is coherence across education, labour, taxation, and innovation policy.</p><p>Ultimately, the success of India’s startup ecosystem should not be judged by the number of unicorns it produces, but by the number of productive careers it enables. This Budget has an opportunity to signal a shift in emphasis. Startups are not merely firms seeking capital. They are institutions that convert human potential into economic value. Treating talent policy as a budgetary priority is, therefore, not a concession to startups, but an investment in India’s long-term growth architecture. In growth-accounting terms, capital deepening can take an economy only so far. Sustained acceleration comes from productivity and skills.</p><p>A Budget that recognises this and places talent at the centre of startup policy will be investing not in the next cycle, but in India’s long-run potential growth.</p><p><em><strong>Vishwanathan Iyer is senior associate professor, Great Lakes Institute of Management, Chennai.</strong></em></p><p>(Disclaimer: The views expressed above are the author's own. They do not necessarily reflect the views of DH)<br></p>
<p>India’s startup narrative is often framed around valuations, funding cycles, and unicorn counts. As a finance professor, I would argue that this misses the more enduring economic contribution of startups. Their real value lies in labour-market transformation: formal job creation, skill formation, and productivity spillovers that extend well beyond the startup sector itself. As Union Budget 2027 approaches, this distinction matters. If startups are to support sustainable growth, talent policy must move to the centre of budgetary priorities.</p><p>The numbers already justify this shift. The Department for Promotion of Industry and Internal Trade (DPIIT)-recognised startups increased from a few hundred in 2016 to over 1.5 lakh by the end of 2024. These startups have reported more than 17 lakh direct jobs, concentrated in IT services, healthcare and life sciences, logistics, and professional services. While self-reported figures have limitations, the scale is now macro-relevant, particularly because these jobs are largely formal, skill-intensive, and linked to productivity-enhancing sectors.</p><p><strong>Talent circulation, not failure prevention</strong></p><p>Equally important is the churn within the ecosystem. Official disclosures show several thousand recognised startups have shut down over the past few years. This is not a sign of failure, but of a functioning innovation economy where experimentation, exit, and reallocation are integral. The policy challenge is not to prevent startup failure, but to ensure that talent circulates efficiently across firms and sectors, allowing skills to compound, rather than reset.</p><p>This brings us to the central constraint facing India’s startup economy. Capital availability fluctuates with global cycles. Talent constraints are structural. Startups consistently report difficulty not in hiring graduates, but in hiring job-ready professionals with problem-solving ability, product orientation, and cross-functional skills. From an economic perspective, this reflects a mismatch between the supply of educated labour and the quality specifications demanded by high-growth firms.</p><p><strong>Three talent priorities</strong></p><p>Budget 2026-2027 should, therefore, treat talent as economic infrastructure, much like physical or digital public infrastructure. Three pillars deserve particular attention: skills pipelines, labour mobility, and talent access.</p><p>First, skills pipelines must be aligned with labour-market outcomes. India has expanded higher education rapidly, but curriculum responsiveness remains uneven. Public spending on skilling is often supply-driven, with limited feedback from employers. A more effective approach would link a portion of funding to measurable outcomes such as placement in relevant roles, retention beyond a minimum period, and wage progression. This logic is consistent with accreditation and assurance-of-learning frameworks, which emphasise demonstrated outcomes rather than inputs.</p>.<p>Second, labour mobility requires better risk-sharing. Startups increasingly hire mid-career professionals transitioning from IT services, BFSI, manufacturing, and consulting. These transitions involve income volatility, uncertainty around equity compensation, and gaps in benefit portability. The Budget can reduce these frictions through regulatory clarity rather than large fiscal outlays.</p><p>Equity compensation illustrates the issue well. ESOPs are central to startup hiring and retention, yet India’s taxation framework imposes a tax at exercise, even when no liquidity event has occurred. This discourages both employers and employees from using equity meaningfully. Aligning taxation more closely with cash realisation would strengthen retention incentives, improve startup balance sheets, and reduce distortion in compensation design, without significant revenue loss.</p><p>Third, talent access must include selective global mobility. Every major startup ecosystem complements domestic talent development with fast-track access to scarce skills. Canada’s Global Talent Stream commits to processing work permits in approximately two weeks for specialised roles. Singapore’s Employment Pass system uses clear salary thresholds and points-based assessment to attract high-quality talent. The United Kingdom’s scale-up visa targets fast-growing firms with specific skill needs. India does not require broad liberalisation, but a narrow, predictable channel for frontier skills in areas such as semiconductors, cybersecurity, deep AI, and biotech.</p><p><strong>Talent policy is a long-term growth policy</strong></p><p>Talent policy also has wider productivity implications. Startup employees carry modern processes and managerial practices into the broader economy, including MSMEs and traditional firms. These spillovers raise aggregate productivity, and are among the highest-return public investments available.</p><p>Fiscal prudence remains essential. Talent-focused reforms need not be fiscally extravagant. Many are regulatory in nature, while others involve reallocating existing spending towards outcome-linked mechanisms. What is required is coherence across education, labour, taxation, and innovation policy.</p><p>Ultimately, the success of India’s startup ecosystem should not be judged by the number of unicorns it produces, but by the number of productive careers it enables. This Budget has an opportunity to signal a shift in emphasis. Startups are not merely firms seeking capital. They are institutions that convert human potential into economic value. Treating talent policy as a budgetary priority is, therefore, not a concession to startups, but an investment in India’s long-term growth architecture. In growth-accounting terms, capital deepening can take an economy only so far. Sustained acceleration comes from productivity and skills.</p><p>A Budget that recognises this and places talent at the centre of startup policy will be investing not in the next cycle, but in India’s long-run potential growth.</p><p><em><strong>Vishwanathan Iyer is senior associate professor, Great Lakes Institute of Management, Chennai.</strong></em></p><p>(Disclaimer: The views expressed above are the author's own. They do not necessarily reflect the views of DH)<br></p>
