1. Startup policy: Mere window dressing

Startup policy: Mere window dressing

The Rs 10,000 crore Fund of Funds is the most controversial. While on the outside it looks like a great move, the fact that the government is looking to invest tax payers’ hard earned money in VC funds is absurd. The government has also decided to set up a panel that will screen startups. Again, why the government wants to get into such areas is not clear. At the same time, they keep saying that government has no role in business. So that begs the question—Is the government trying to help out startups or merely trying to bask in reflected glory?

By: | Published: January 25, 2016 12:11 AM

Sometimes the euphoria surrounding an event can drown the subtext. The Startup Policy announced by Prime Minister Narendra Modi was one such example. Of course, overall it’s in the right direction and has the right tenor but it hasn’t gone all the way. For one thing, India has already produced an array of  startups valued at billions of  dollars—Flipkart, Snapdeal, Ola etc—and they did not quite need a supportive policy to find their wings. So it was not like the environment was not conducive.

The policy, one thought, would be designed to encourage startups to stay in India. As one knows Singapore has long been an alternative option for Indian startups with its investor friendly tax regime.  While the policy outlines that startups will be exempted from filing income tax for three years, I am not sure how much of this would help the entrepreneurs as they hardly generate any income during their early years. To make it count, the government could have looked at a longer duration.

The R10,000 crore Fund of Funds is the most controversial. While on the outside it looks like a great move, the fact that the government is looking to invest tax payers’ hard earned money in VC funds is absurd. It is not anyone’s duty to help build startups. The risk-reward ratio is skewed very much towards the former in a venture capital scene. The plan is to invest in funds registered with SEBI which in turn will look to spot promising startups. But by risking tax payers’ money? Bad idea.

Yes there’s one imbalance that the government is trying to correct. Almost all of India’s venture financing for startups has been carried out with overseas capital. As can be gauged, such foreign capital tend to favour ‘me-too’ stories—companies that carbon copy a successful model in the US. Domestic funds need attention and muscle. But this may not be the best way to do it though.

The government has also gone ahead and defined what a startup is. The new policy document says a startup is one that has to be technology or intellectual property (IP) led.  Now this counts out non-technology startups. And this seems unfair. As it is, startup capital has not been flowing down the path of innovative startups operating in the non-internet space. And now the government decides that a startup has to be technology-led and that too with an
incubator backing it. We seem to be building walls not breaking them down.

If the government was intending to attract some of the entrepreneurs who had left Indian shores, they may be
disappointed. I don’t think enough has been done to get their attention. While being able to register a company on a mobile app is good, but just seems like window dressing. It has also decided to set up a panel that will screen startups. Again, why the government wants to get into such areas is not clear. At the same time, they keep saying that government has no role in business. So that begs the question—Is the government trying to help out startups or merely trying to bask in reflected glory?

India already has over 4,000 startups, placing it third in the global ecosystem in this regard. We are only behind US and UK, according to a report by Nasscom. The trade body also says that we are also the youngest startup country in the world with over 70% of the founders aged under 35 years. And that’s incredible.

It needs re-iteration that most of this startup growth story has happened over the past five years or so, with little intervention from the government. The Start-up Policy, is at best, a vindication of the sector’s efforts. Hope the government stays out as much as possible, as the startup engine has been revving without any external support and it probably does not need a patronising presence now. The Policy is a bear hug that may not mean much, but a warm gesture nevertheless.

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