Government policy

How PM Modi's Emphatic Call for Startup-first Economy has Just Moved a Needle

Over the last 30 months, since the launch of Startup India program, the barrage of schemes has claimed impact without a measuring stick to study its scale.
How PM Modi's Emphatic Call for Startup-first Economy has Just Moved a Needle
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Start-ups (including any online or offline business) are certainly living in interesting times. Number of unicorns are rising, many start-ups are going global, foreign investments are pouring in etc. All that without using the crutches of the Startup India program ever! However, since the government happens to be a necessary evil, its most ambitious program for start-ups should be looked bottom-up for analysis.

Tax Torture

At the top, it tells you of over 6,000 such businesses registered with the program, around 124 of them funded via Fund of Funds, around 1,000 tinkering labs set up, lowered cost for filing patents and trademarks etc, (which is why called ‘moved a needle’ when compared to around 7 million new entities born in India in last seven years, basis government’s start-up definition). However, the larger business sentiment is that there is a gap between the net impact and the claims made earlier, the biggest one being the taxation part. The last amendment in the angel tax wants start-ups to get their valuation certificate from a merchant banker and that the deal has to be certified by the inter-ministerial board. This defies the logic of government knowing about business valuations.

“This is tax terrorism. What knowledge do they have about valuing a company? They wouldn’t have questioned the valuation if it was a Securities and Exchange Board (SEBI) registered start-up fund,” adding that, “Now to circumvent the tax department’s objection, they will say we will set up a committee. But, when will the committee sit? When they will approve and what will they approve, nobody knows," says T V Mohandas Pai, Chairman, Manipal Global Education and one of the most vociferous voices in the start-up ecosystem.

The overall tax torture reflects in one of the surveys (of more than 33,000 start-ups and small businesses across India) done in December 2017 by the community network LocalCircles. 31 per cent respondents received multiple tax notices in 2017. What debunked the Startup India program was a whopping 80 per cent claiming no benefit out of it. “The income tax commissioner in every district selects the smallest companies and sends a blanket notice to them. Since most start-ups and SMEs by nature are loss-making, they don’t have any regulatory dues. Hence they are first to get hit,” says K Yatish Rajawat, Chief Strategy Officer, LocalCircles.

Spoilers

The biggest challenge, claimed in the survey by 52 per cent start-ups, is corruption or bureaucratic inefficiency. GPS tracking solutions start-up Letstrack, which registered with the initiative a few months back, claims of ‘everything being pre-fixed’. “We haven’t seen any value yet. The biggest issue is the corruption. We were never able to register every time we tried; hence, we ‘hired’ someone to do it,” says Vikram Kumar, Founder and CEO, Letstrack. However, he didn’t divulge the details.

What start-ups thrive on - other than capital – networking, is missing too. While there is a ‘Connect’ option on Startup India Hub website, to connect with other entrepreneurs, but it is linked to their social media accounts. To reach out to investors, it only acts as a platform instead of a hand holding process. “We thought that there would be some kind of a local body that would drive the meet ups with start-ups and investors but that hasn’t been there either online or offline,” says Sushant Reddy, Founder and CEO, AskArvi – Mumbai-based insurance-tech start-up registered with Startup India.

Another spoiler, though not talked about much, is the sense of being lost amidst heaps of information and multiple channels to reach out to the right person. “I had to travel often, so the biggest challenge for me was to deal with it one-on-one. Since start-ups have limited time and need great hand holding, it would have been great had there been someone like a case manager to whom a particular start-up could be assigned for help,” says Sunil Konduru, Founder and Chief Executive Officer, TravelUR.

Coming back to the capital, the Fund of Funds is struggling to gain pace. Till April this year, only around 11 per cent (of Rs 1,285 crore committed by SIDBI to 27 venture funds) has been disbursed to these funds to further invest in start-ups.

“While the Fund of Funds scheme has created a positive impact among entrepreneurs but the expectations of getting funded may not have been as productive or helpful due to time or procedural delay,” says Dr Madhukumar Mehta, Co-founder and Chief Mentor (Emeritus), iCreate – Ahmedabad-based incubator.

It was inaugurated by Modi and Israeli Prime Minister Benjamin Netanyahu, in January this year. Another reason quoted is the gradual evolution of the ecosystem and hence, it would take time for the scenario to change. For instance, Israel became a start-up nation after 17-18 years of intense government effort. Start-ups weren’t a culture despite being a low population country, reasonably wealthy and high technical education and competence. “Entrepreneurship is just beginning in India, and it would be radically ahead in four-six years. However, entrepreneurs should be happy if the government is solving 20 per cent of their problem. Those who complain aren’t true entrepreneurs,” says Anupam Jalote, Chief Executive Officer, iCreate.

The signaling has been very strong given the risk appetite of Indian entrepreneurs (validated by being the third largest ecosystem) that has also led to a large number of people coming to start-up stream. However, now it is the speed that counts and not the mindset.

“It is rubbish to say that it will take time for things to improve. The world is not waiting or standing still for the Indian government to progress its start-ups. Look at how proactive the Chinese government is for its start-ups. It is the bureaucracy that is hindering everything. This is an area where speed is essence with transaction,” concludes Pai.

(This article was first published in the July 2018 issue of Entrepreneur magazine. To subscribe, click here)

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