India sees 12-fold surge in startup closures, signaling market correction

India, home to the world’s third-largest startup ecosystem, is grappling with a sharp spike in startup closures. Over 28,000 startups have shut down in just two years — 15,921 in 2023 and 12,717 in 2024 — a dramatic increase compared to the annual average of roughly 900 closures seen between 2019 and 2022. The figures point to a 12-fold rise in shutdowns, according to data compiled by intelligence firm Tracxn. A significant number of these companies were inactive for over a year before being officially marked as defunct. The overall startup formation rate has also slowed down considerably, with only 5,264 new firms registered in 2024 so far — a stark decline from the yearly average of 9,600 startups during the 2019-2022 period.

Experts attribute this downturn not to a collapse of the startup ecosystem, but to a much-needed recalibration. Pearl Agarwal, founder and managing partner at Eximius Ventures, explained that the boom years saw an influx of capital into the sector, often at premature stages of business development. Many startups raised funds before finding product-market fit (PMF), leading to unsustainable growth trajectories.

“During the funding peak, capital flowed into companies still exploring their core offerings. Now that market expectations have tightened and discipline has returned, only those with clear value propositions and sustainable models are surviving,” said Agarwal.

The downturn has hit certain sectors particularly hard. AgriTech, FinTech, and education technology have seen the highest closure rates, with many businesses struggling to maintain traction or secure follow-up investments.

Despite the current downturn, experts believe this phase will strengthen the ecosystem in the long term, weeding out weak models and paving the way for more robust, scalable startups.