More start-ups needed to stand up as examples
less than a year after Prime Minister Narendra Modi gave the call for ‘Start-up India, Stand Up India' from the ramparts of the Red Fort on Independence Day, his Government effectively kick-started the initiative to galvanise the country's entrepreneurial spirit on Saturday. A slew of important announcements was made at the launch, which when viewed together, offers a holistic view of how the Government intends to nurture the overall start-up eco-system.
This includes increasing the ability of banks to lend more money, putting in place a start-up-friendly tax regime, and destroying the last vestiges of the licence raj. We'll only know the full impact of these when specific plans and measures are announced, but for now the Government is moving in the right direction. For example, currently, investors in Indian start-ups have to pay a 30 per cent capital gains tax while those who put money in the stock market pay none. This, the Government has indicated, it will fix, possibly in the next Budget, so as to encourage Indian angel investors. Once the regressive tax is lifted, cash flow into the start-up ecosystem should improve considerably.
Another start-up-friendly measure in the pipeline is the new Insolvency and Bankruptcy Code. When talking of business-friendly reforms, the first thing that comes up is that the Government needs to make it easier for entrepreneurs to start new businesses — in India, this takes several weeks and tonnes of paperwork, whereas in the US and Singapore it takes a few days and fewer forms. However, when dealing with start-ups in particular, it is important to not just streamline the setting-up process but also the shutting-down mechanism (which is even more convoluted than the former). Start-ups, by definition, are more vulnerable to failure and it is imperative that innovators be allowed to quickly wrap-up failed ventures so that they can go back to the drawing board and re-start. This is where the Insolvency and Bankruptcy Code, currently being scrutinised in Parliament, will come in.
But, while Saturday's event reiterated the Government's commitment to developing India's start-up space, it also highlighted the many challenges that the country will face in this regard. For one, India must quickly resolve its start-up paradox. Even as foreign start-ups like Facebook, Whatsapp, Amazon, Tinder and Uber are aggressively working the Indian market, some of India’s biggest domestic start-ups are either registered abroad — such as e-commerce platform Flipkart and healthcare application Practo (both in Singapore) — or receive large amounts of funding from foreign investors, such as the other e-commerce giant Snapdeal and online wallet platform Paytm. Second, the Indian ecosystem will have some major catching-up to do, as it competes with the more mature start-up regimes around the world — and forget about Silicon Valley or ‘Start-Up’ Nation Israel in this context, even competing with a Sao Paulo or a Seoul is tough. Finally, the Government should be clear about its role in the larger start-up picture. It should play an enabling part, providing a nurturing environment for the different players — investors, incubators, mentors, co-working platforms, thought leaders and change-makers — to come together, but go no further than that.