Prime Minister Narendra Modi’s announcement on Sunday that the government will unveil, in January, a comprehensive plan to help make India the world leader in startups is noteworthy. A part of the plan is to link all the IIMs and IITs, central universities and National Institutes of Technology via ‘live connectivity’. The move is expected to assist aspiring entrepreneurs plug into a network of incubators, mentors and angel investors and provide them the ambience to try out their business ideas in the real world. The startup policy is expected to, among other things, make it easier to start and exit a business, allow flexible hiring for new firms in their first three to five years, and provide incentives for financiers, especially domestic funds, as 90 per cent of startup financing currently comes from foreign venture capital funds. The government’s hopes of making India a serious contender to Silicon Valley may seem aspirational, but are also driven by the realisation that India needs many more new enterprises to create 10 million jobs for the youth entering the workforce each year. Apps and services apart, India needs startups in manufacturing, industrial design, agro-based food processing and renewable energy among some of the key sectors. Many Indian startups have made a mark this year with valuations in billions of dollars. The home-grown Flipkarts and Snapdeals have resiliently taken on the global e-tailing giant Amazon, so far. But many of these Indian success stories, more than 65 per cent of startups, have left the country to operate from places like Singapore.
This exodus is not because India doesn’t foster innovation per se. Google CEO Sundar Pichai, in fact, remarked that the constraints people work with in India inspire more creativity and make their ideas more useful for the world. Indian entrepreneurs — from the small-scale factory owners in the 1970s and 1980s to the Bombay Club barons who resisted liberalisation in the 1990s — have a history of successfully adapting their business plans to adversarial regulatory regimes. That startups blossomed in the past few years was not related to the UPA government’s policy or lack thereof. They came up despite the government. Certainly, targeted interventions for startups would help. The mandatory use of Aadhaar for registering a new micro, small or medium enterprise could, for instance, be done away with. Similarly, angel investments by domestic financiers should not be treated as taxable income in the hands of a startup. Clearances and patents should be expedited, and crowd-funding allowed. Most importantly, the labyrinth of regulations and compliances that even startups that attain scale end up being subjected to — making business sense for them to leave India — has to be addressed. It is here that the new policy must deliver. As Mr. Pichai said, the ease of doing business has improved, but it needs to get a ‘whole lot better’ for India to meet its true potential.
Keywords: startup policy, live connectivity
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