For over a decade, India’s startup ecosystem has been shaped by a familiar image — venture capital in Mumbai, glass towers in Bengaluru, founders pitching equity and exits. Innovation was defined by corporate form. To be a startup meant to be a private limited company, backed by investors, built for scale and valuation. The recent decision to include cooperative societies — including multi-state and state registered cooperatives — within the formal startup recognition framework marks a quiet but consequential break from that definition. This is not merely an administrative expansion.
It is a redefinition of who qualifies as an innovator in India’s economic architecture. Startup recognition brings more than symbolic legitimacy. It provides access to tax incentives, simplified compliance, government-backed incubation networks and policy visibility. Until now, that ecosystem was largely designed around corporate entities. Cooperatives — despite their scale — existed outside the innovation imagination. Their inclusion alters the boundary of the startup state.
Redefining what a “Startup” means
India has over eight lakh cooperatives operating across credit, dairy, procurement, fisheries and warehousing. More than 1.3 lakh Primary Agricultural Credit Societies (PACS) form one of the largest grassroots financial networks in the country.
Yet these institutions were historically categorised as service delivery bodies — not innovation vehicles. By bringing cooperatives under the startup framework, the state is implicitly challenging the assumption that innovation must be equity-driven and investor-owned. It recognises that member-owned institutions, too, can experiment with technology, optimise processes and create scalable impact. The move expands the grammar of entrepreneurship. For the first time, a democratically governed enterprise form is being placed within a policy architecture originally built for venture-backed firms. That is not cosmetic. It changes the conceptual boundaries of the ecosystem.
Bridging institutional silos
For years, India’s startup ecosystem and its cooperative ecosystem operated in parallel. Startups spoke the language of valuation, burn rates and exits. Cooperatives operated under statutory oversight, often constrained by state registrars and legacy compliance frameworks. One attracted capital and global visibility. The other managed local economic systems largely outside innovation discourse. The inclusion policy bridges these silos. If implemented seriously, cooperatives will gain entry into incubation networks, technology partnerships and policy platforms previously reserved for corporate startups. At the same time, the startup ecosystem itself becomes more geographically and institutionally diverse. The ecosystem stops being exclusively urban and corporate.
Inclusion is not automatic transformation
However, expanding eligibility does not automatically generate innovation. Many cooperatives struggle with governance weaknesses. Political capture, opaque accounting and limited professional management remain real challenges. Simply granting startup recognition will not dissolve these structural constraints. Critics may argue that inclusion risks diluting the meaning of “startup” without improving cooperative performance. That concern deserves attention. If recognition is unconditional, the reform may become symbolic.
If linked to governance benchmarks, digital transparency standards and professional management criteria, it could trigger deeper institutional change. Inclusion must therefore be paired with discipline.
The capital question
The inclusion decision also forces a structural conversation about capital. Startups typically operate within equity-driven models. Investors deploy funds in exchange for ownership stakes and exit potential. Cooperatives, by contrast, function on a one-member-one-vote principle. Control is democratic and decoupled from capital contribution. The two frameworks do not align easily.
By admitting cooperatives into the startup ecosystem, policymakers are implicitly acknowledging that innovation need not depend exclusively on traditional equity logic. This may eventually require hybrid instruments — non-voting shares, structured capital models — that preserve democratic governance while enabling investment. In that sense, the reform pressures not just cooperatives, but the startup ecosystem itself to evolve.
A precedent in policy thinking
The inclusion of cooperatives signals something larger about India’s policy trajectory. For a decade, startup policy privileged a particular organisational form. That made sense in a venture driven growth phase. But as the ecosystem matures, its boundaries must expand. Incorporating cooperatives indicates a willingness to democratise innovation policy. It acknowledges that technology adoption and entrepreneurial experimentation can occur within collective ownership structures. India’s dairy revolution, led by institutions such as Amul, showed that cooperatives can compete globally when professionally managed.
The lesson now is whether that spirit can be integrated into the formal innovation architecture. The inclusion decision does not guarantee success. But it sets a precedent: the state is no longer defining entrepreneurship solely through corporate ownership.
The real test
The policy door has opened. Execution will determine credibility. But, will cooperatives gain meaningful access to incubation networks and technology partnerships? Will recognition be tied to governance reform? Will capital frameworks evolve to accommodate democratic enterprise? Or will inclusion remain a formal notification with limited operational effect or reform?
If implemented with seriousness, this reform could widen India’s innovation ecosystem — geographically, institutionally and socially. It could allow grassroots institutions to participate in the same policy framework that nurtured unicorns. If reduced to symbolism, it will simply expand eligibility lists. The significance of this moment lies not in the number of cooperatives that apply for startup recognition, but in whether the definition of innovation in India has permanently shifted. For the first time, the startup state has extended its hand beyond corporate founders. What happens next will determine whether that gesture marks a structural evolution — or a footnote in policy history.
(The author, Devesh Mishra is an MBA Candidate at IIM Udaipur, and a former advocate practicing in the Supreme Court of India. He writes on institutional reform, startup policy, and cooperative-led economic transformation. The views expressed are personal)