It seems that Gujarat's high profile GIFT city has failed to attract funds, and as a result, India's FinTech investment has dipped.
The Indian government under Prime Minister Narendra Modi has been actively promoting Gujarat International Finance Tec-City (GIFT City) as a major fintech hub, situated just 20 km from Ahmedabad. However, according to a recent report by Tracxn Technologies, neither Ahmedabad nor Gandhinagar, the state capital, are among the top fintech funding receiving centers in India.
Tracxn, a leading market intelligence platform, has released the results of city-wise trends on funding raised in the first quarter of 2024. The report shows that Bengaluru received the highest funding of $247 million, accounting for 44% of all funding received, followed by Mumbai with $194 million (35%), Hyderabad with $75 million (13%), Gurgaon with $19.7 million (3%), and Surat - the only Gujarat city to figure in Tracxn's list of cities - with $5 million (1%).
The report also offers a comparison of the first quarter of 2024 with the quarterly performance since the second quarter of 2022. It indicates that the FinTech startup ecosystem has failed to catch up with the high investment trend witnessed in 2022. Thus, the Q1 2024 result worked out by Tracxn shows that the FinTech sector received a total investment of $550.8 million as against a whopping $1.3 billion in Q1 of 2023.
The trend suggests a sharp downfall over the period for which data has been released. For example, Q4 of 2023 received $346.7 million as against $537.4 million in Q4 of 2022, Q3 of 2023 received $476.6 million as against $973.4 million in Q3 of 2022, and Q2 of 2023 received $138.5 million as against $1.6 billion in Q2 of 2022.
Despite the sharp downfall in the funding of the FinTech startup ecosystem, the report seeks to heap praise on the Indian economy, which it says "showed a strong performance in the previous quarter with a growth of 8.4%." Although the report acknowledges that "this number is expected to decline to 5.9% in Q1 2024 as per government sources," it insists, "The Government of India has always been focused on promoting the tech ecosystem in the country."
The report notes that the declining trend in the funding of the FinTech startup ecosystem has come despite the announcement of the Startup India Initiative in 2016. The initiative came up with multiple schemes and initiatives to boost the growth of India's startup ecosystem. The report also mentions that around $12 billion was allocated in the Interim Budget for 2024 for providing interest-free loans for 50 years to promote R&D in the private sector in the country.
The report quotes the IMF to say that India is expected to become the third-largest economy in the world by 2027, with a GDP of over $5 trillion. It adds, "FinTech has consistently been one of the top-funded sectors in the country. Increasing smartphone penetration, the push towards a cashless economy, and other favourable regulatory policies have helped the sector receive consistent investor interest."
The report compares the funding in Q1 of 2024 and Q4 of 2023 instead of Q1 of 2023. It says, "Banking Tech, the third-highest funded sector, received funding of $85.8 million in Q1 2024, which is a growth of 187% compared to the $29.9 million in funding witnessed in Q4 2023, benefiting substantially from record-breaking UPI transactions and digital banking's widespread adoption due to rising internet and mobile device penetration in cities and rural areas."
It should be noted that the comparison made between the two periods is considered by many to be incomparable, as the periods being compared do not match. However, the report states that in Q1 2024, there was a significant 75% drop in seed-stage funding, which amounted to $9.9 million, compared to the previous quarter's $39.2 million. Additionally, early-stage funding saw a 35% decrease, from $227 million in Q4 2023 to $147 million in Q1 2024. On the other hand, late-stage funding witnessed a phenomenal rise of 392%, amounting to $394 million, compared to the $80.1 million raised in Q4 2023.
