Startup India - the hits and misses


The government has done more to glamourise starting up through the glittering Startup India event in Delhi than thousands of panel discussions and newspaper editorials ever could. A lot of entrepreneurs are going to start working on their wedding plans with renewed enthusiasm. I can visualise millions of parents proudly talking about their daughters to prospective grooms and in-laws saying “she runs her own startup".

The government at the ‘Startup event’ in Delhi pulled out all the stops and put together a great show (despite a few long and boring sessions) by getting together top ministers, charming bureaucrats, and leading entrepreneurs at the event. Also, getting icons like Adam Neumann, Masayoshi Son, and Travis Kalanick live on a common stage was remarkable. It would have been a good idea to also attract at least one big name outside the technology space because thanks to the massive media coverage of online and e-commerce ventures, entrepreneurs in India incorrectly assume they have to launch an app-only consumer tech business to qualify as a true startup.

With regard to the announcements made at the event (YourStory report), we will have to wait and see if it will actually impact the startup and entrepreneur activity in India.

However, here are my views on some of the key policy decisions:

In my view, making exits easier for startups is the most important announcement. Most startups will fail (and I cannot resist adding this: although all entrepreneurs will succeed) and that’s the nature of the beast. It is critical for an entrepreneur to move on from the failed venture to fresh starts instead of getting into long drawn regulatory and legal whirlpools. I speak from experience here.

Despite moving out of my startup in 2013 after 14 long years, I am still struggling to close that chapter completely. Will I ever get around to starting up again?

Other announcements relating to the ease of starting up through a simple form filled on an app, self-certification clause, and importantly no government inspection for three years are good steps. Entrepreneurs live a difficult life in the early years; they must focus all their time and efforts on creating a great product or service and can do without regulatory or documentary distractions.

I like the idea of providing help to startups in assessing and filing patents. A startup I am involved in recently filed a couple of patents in the area of augmented reality and for sure, the process can do with help and speed. We must encourage our startups to file numerous patents.

I am not very impressed with the idea of the government funding startups, even indirectly as proposed. I strongly believe that the government should only focus on helping startups get off the ground through policies and infrastructural improvements and stay away from making actual investments. Investing in startup is about deploying high-risk capital for high returns and is best left to angel investors, venture capitalists, and private equity funds who have the appetite for this game. The funding idea also seems to go against the PM’s stated intent of ‘less government, more governance’. On the other hand, the decision to provide investors with capital gains relief and also tax exemption for investments above fair market value is the way to go and should encourage them to increase their risk appetites.

There’s a tongue-in-cheek sense of humour in the policy announcements:

Startups will now be exempted from income tax for three years. Really? Most entrepreneurs in India believe that the purpose of their ventures is to raise money and not to make money. So who is going to benefit from this waiver? I also wonder how long this exemption will be valid after a startup is launched; some of our unicorns may realistically need close to 15 years before this benefit can kick in.

Hopefully, some new startups will read this clause, start wondering how to benefit from this and begin by asking what is the definition of this ancient word ‘profits’?

Instead, what startups really need is service tax exemption. Several startups I know of are building B2B business models and if they can get service tax exemption for (say) two years or five crores gross annual billing, it will make them more competitive.

I would also urge the government to consider import benefits like customs duty exemptions for the first three years. Startups like Cardiac Design Labs (that won the jury award at the Startup India event) will have to regularly import components to design their devices, and customs duty exemptions will surely help them more in the early years than income tax waivers.

I like the idea of funding support to set up incubators across India with private-public partnership. The real challenge would be to maintain the quality of incubators; some start as incubators but quickly become glorified real estate agents offering workspaces. The money spent by the government to set these up can get wasted unless closely monitored through an experienced panel.

Catching them young is smart and the thought of teaching innovation at the grassroots level to school kids is interesting. But where are the teachers? Who is going to teach innovation in five lakh schools?

Setting up regional entrepreneurship cells across select institutes is also a good thought because it will spread the message of entrepreneurship and build national awareness but will also suffer from the same challenge: how do we get quality mentors with real entrepreneurship background and experience to monitor these outposts? We must announce ideas that can be practically implemented and not just stop with good intentions.

I also worry about the entrepreneurship courses taught at several campuses, including at leading business schools. Many of them use outdated material put together and taught by faculty who (with due respect) have never been entrepreneurs. This is a big issue and requires a coordinated effort by the HRD ministry.

As an aside, why are there only engineering colleges and business schools on this list? Surely, there are very smart people and potential entrepreneurs in colleges with an emphasis on liberal arts?

Startups definitely need access to reliable high-speed Internet.

Customers (including Ganesh and Rahul) will not be able to try out the next big startup because in the early years when the startup is still unknown, Internet service providers like Airtel, Reliance, and Vodafone using a dual pricing policy may end up charging consumers to access such unknown and low traffic sites and of course, no one will pay. Net neutrality is critical to foster entrepreneurship in India. If we truly want to launch 1,00,000 startups in the near future, we cannot launch Startup India on one hand and on the other hand offer entrepreneurs anything less than an open Internet. I hope the government makes a serious note of this.

It is also important for the government to pass two important pending bills in parliament without any further delay – the GST and the bankruptcy bill, both of which can positively impact startup activity.

All said and done though, things certainly look exciting. The Startup India event was a great initiative by the government but this is just the start, no pun intended. We must follow through with real action on the ground and choose one out of the two options in front of us.

The first option is to display intent, put up a show, make a few announcements – some of which can be quite impactful (all these boxes have now been ticked). But in reality they end up pulling in different directions resulting in a step back for every two forward. This gives an impression of lots of movement but little real momentum and end up frittering away a great opportunity to galvanise the economy.

The smarter option is for all stakeholders including the central government, various state governments, the bureaucracy, entrepreneurs, investors, mentors, the support services, the infrastructure providers, the academic institutions, and anyone else connected with the startup ecosystem in India to come together in one unified movement and – to repeat what Travis Kalanick, Founder and CEO of Uber, beautifully explained on stage at the Startup India event – “create magic”.

(Disclaimer: The views and opinions expressed in this article are those of the author and do not necessarily reflect the views of YourStory.)