Right moves by govt, extend reach to non-tech firms
While it remains unclear whether tech start-ups have anywhere near the potential to create the kind of employment that India needs, Prime Minister Narendra Modi has done well to give these start-ups the necessary ammunition to get on with value creation with the minimum of government interface. So, there is to be self-certification when it comes to compliance with six labour and three environmental laws—since the start-ups are primarily based on tech, this is to be done through a start-up app. There will 80% rebate on patent application fees, but the real driver will be the sharp increase in the number of patent examiners at various patent offices. Similarly, while it is not clear how much of a game-changer corporate tax exemptions will be—they also look odd given how the government is keen on phasing out such exemptions—the fact that the taxman will be at bay for a few years will go down well; if start-ups like Google had to face the kind of red tape Indian entrepreneurs have to, it’s likely there would have been no Google. Giving a tax-free status to venture capitalists exiting start-ups after a year looks like a tax break, but isn’t really so when you consider that those investing in the stock market get this facility even today.
Given the problems related to CVC/CAG/CBI investigations, the government has done well to put a double wall between its Rs 10,000 crore start-up fund and firms—the fund itself will be professionally managed and will have strong governance norms, but will not invest directly in start-ups; it will do so in Sebi-registered venture funds which, obviously, have their own governance standards and boards to report to. The biggest demand of venture capitalists, given Indian history, was of easy exit for failed start-ups, and Modi has promised this will be done within 90 days. This is to be done through the bankruptcy Bill where, if no solution is found to revive a firm within 90/180 days, it will head for insolvency—this applies to all firms, not just start-ups; presumably, the insolvency procedure will also be streamlined. While the government has made a beginning in easing rules for start-ups, the real boost will come when the same rules are applicable to all firms. As Modi said over the weekend, the government had done a lot over the last 70 years, what it needed from start-ups was a list of what not to do—the way to hell, as the country’s labour laws for instance make evident, is paved with good intentions.