Angel tax has meant fewer start-ups, less investments

Published: January 10, 2018 2:07:14 AM

India is genetically an entrepreneurial country. For centuries, the country has seen dilution of value creation with the British rule and the socialist model, but with liberalisation in 1991, entrepreneurship was unleashed.

angel tax, angel tax company profile, finance startupsEntrepreneurship gradually climbed up to become the top career option and failure became acceptable.

By-Padmaja Ruparel    

India is genetically an entrepreneurial country. For centuries, the country has seen dilution of value creation with the British rule and the socialist model, but with liberalisation in 1991, entrepreneurship was unleashed. The first generation of entrepreneurs built companies with a global footprint and became the icons of new India. Entrepreneurship gradually climbed up to become the top career option and failure became acceptable. While India represented a large market it also represented a market with unique and varied customer demands and thus innovation of products/services catering to needs of the developing economy became central—not only for India but also for other developing countries.

Entrepreneurship however had its own challenges—access to early seed funding being one of the key ones. The pyramid of venture/company creation was, and still to some extent, inverted. Angels invest personal monies, walking the same risk as the entrepreneur and bring in valuable mentoring and access to global networks. This is invaluable for companies to grow and raise next rounds of monies and create jobs.

Today, India is the fastest growing start-up hub in the world. The Indian start-up ecosystem, the third largest in the world, has entered in its fourth generation. It is projected that by 2020 there will be over 20,000 functioning start-ups. According to Nasscom, until 2017, India added more than 5,200 new start-ups and was growing at an impressive rate of 7% over the previous year.

Entrepreneurship 4.0 is about diving deeper into India-centric problems and discovering India-specific answers for the masses. The virus of innovation and entrepreneurship has infected the entire country and across sectors like agriculture, irrigation, sanitation, healthcare, education, manufacturing, etc. There cannot be a better time than today for start-ups and entrepreneurs to make the most out of these initiatives and strive to find frugal solutions to pertinent problems with right technology and innovation. These involve the use of artificial intelligence, automation and machine learning to solve inefficiencies in areas like healthcare, logistics, education and financial services.

India today is the fountainhead of the digital revolution. Today, a common man has a bank account, a mobile phone and a unique identity. Then there is the massive pool of financial inclusion—with Aadhaar, BHIM, and start-ups leveraging AI, blockchain and machine learning algorithms to cater to under-served SMEs and individuals. This is the emergence of innovation for “Bharat”—unveiling Entrepreneurship 4.0.

The average age of entrepreneurs in India is just above the 30s. Entrepreneurs and start-ups are key, and India’s demographic advantage will only help if we can nurture these young minds to build India into a super power of innovation, value creation and wealth.

While India is on a growth cusp, the government has put a sharp spotlight on start-ups. While it is trying to enable, there are some critical regulatory issues that need urgent attention for India to achieve entrepreneurship 4.0. Today, angel investments in the country have slowed down and so have start-ups—the “angel tax” has been a contributor to this. It has meant fewer start-ups, less angel investments and reduced job creation. Young start-ups, to avoid unfair taxation issues, are starting to move out of the country and this means that value creation and job creation are moving out. Ease of doing business needs to be significantly enhanced with continual government support to break down existing regulatory barriers.

In the 21st century, Entrepreneurship 4.0 is about creating India a copious habitat for entrepreneurship, showcasing our strength as the “legions of tomorrow”. And we need to be prepared for this in every way – focussed on not only building India, but building for the globe.

The writer is co-founder, Indian Angel Network

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