India start-ups boom trickle down, investors cut budget fearing huge online sales won’t happen

By Staff Writer

Jan 22, 2016 05:12 AM EST

What seems to have been a business boom in India was lost as global investors fear that huge online sales may not happen due to increasing valuations and long-term profits. After giant foreign firms invested billions of dollars into the Internet start-ups in the country for the last two years, they are now cutting down the money they pump in India.

Reuters wrote that CB Insights and KPMG reported that venture capital investments in the country's start ups dropped by almost 50 percent to only $1.5 billion during July to September last year. Venture capitalists tightened their investment budget due to China's economic downturn.

Bank of America Merrill Lynch forecasted India's e-commerce industry to soar to $220 billion by 2025 from 2015's $11 billion. However, after global investors tightened their budgets, start-ups in the country might be in jeopardy.

Norwest Venture Partners India head Niren Shah said, "While the first phase of funding was about investing in big investors want to look at how entrepreneurs manage their business and compete while investing."

Financial Times reported that India's Prime Minister Narendra Modi allocated $1.5 billion worth of government fund for four years to help start ups. This initiative is called "Startup India," which he announced Saturday in New Delhi in front of prominent leaders in the tech industry like Uber founder Travis Kalanicj, Japan-based telecoms firm SoftBank founder Masayoshi Son, and Indian tech groups' backers.

However, entrepreneurs fear that his initiative would only be a drop in the ocean amidst global investors tightening their budgets.

Meanwhile, India's top banker Chanda Kochhar recently said that the country is in a "sweet spot" with low-growth and low-inflation environment amidst the turbulent global economy. According to Business Standard, she expects private investments to surge, but advised that strengthening the institutional framework is key to a stable and sustainable growth in India's economy.

Ultimately tech start ups in India are experiencing losses rather than gains, partly because of its discount-driven business model. Also, out of India's 1.3 billion population, only 252 million have access to the Internet. 

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