3 years of Narendra Modi govt: Schemes galore, but for startups nothing much has changed on ground

The Narendra Modi government has made a lot of promises for entrepreneurs in India, but how many of them have really helped the startup sector is a question that begs an answer. Whatever the answer, which is detailed below, a general consensus is that it is the first government that has paid more than a nodding acknowledgment to entrepreneurship.

After he took over as the prime minister, Narendra Modi announced a slew of programmes to promote entrepreneurship in the country. Among them were ‘Skill India’ so that the large number of youth in the country could be skilled and become a productive youth force, ‘Make in India’ to promote manufacturing in the country, ‘Digital India’ to make the country a digitally connected and, indeed, the Startup India, Stand Up India programme.

Earlier, in the NDA government’s interim budget in 2014, Finance Minister Arun Jaitley announced the creation of a Rs 10,000 crore dedicated startup fund, which promised a lifeline to cash-starved small firms.

The Modi government has given a lot of impetus to entrepreneurship through these schemes, says Paula Mariwala, Partner, Seedfund and Co-Founder, Stanford Angels.

Sunil Goyal, CEO and Founder, YourNest Angel Fund, says the biggest positive is that the government has put in place a policy that helps foreign capital to flow into the startups. “NRIs and foreign nationals can raise capital and the government has given us clarity that the money invested in these funds and the multiplied capital and returns can be repatriated to the funder. That is a huge high,” he says.

Internationally, people are gung-ho about India and the government’s push to entrepreneurship. Indian startups have raised $3.5 billion in funding in the first half of 2015, and the number of active investors in India increased from 220 in 2014 to 390 in 2015, according to Economic Survey 2015-16.

All these aside, ironically, the sector continues to be troubled with issues thrown up mostly by the same programmes that were meant to make entrepreneur's life easier. A product startup entrepreneur, who spoke on condition of anonymity, said the little issues that he is plagued with when he goes to a government department seeking help. “Startups are being heard at government departments, which is a big change from being not welcomed at all. Bureaucracy kicks in as the officers are more inclined to go for ‘safer’ options like traditional business than risk their necks with startups,” he said.

Prime Minister Narendra Modi. Reuters

Prime Minister Narendra Modi. Reuters

The Stayzilla case, in which the company's CEO Yogendra Vasupal was arrested and put in jail in a payment default case about 2 months back, underscore the hardships of being an entrepreneur in India. An open letter written by 345 prominent entrepreneurs to home minister Rajnath Singh posted on the website www.help-yogi.com had raised this point. The site was launched in support of Vasupal. Among the signatories were Vijay Shekhar Sharma, Founder and CEO, Paytm; Bhavish Aggarwal, co-founder and CEO, OlaCabs; Mohandas Pai, former chief financial officer, Infosys; Shashank ND, co-founder and CEO, Practo.

"If ever there's a right to be an entrepreneur, that's clearly been violated. Period,” the letter says pointing out the way in which the case has been handled has already sullied India's image in the Silicon Valley. According to them, India now looks like the worst place to start up.

No govt orders

The ecosystem is largely teeming with youngsters who are fresh tech graduates and people who have had a few years in the corporate world before they decided to venture on their own ideas and startup a business. Many startups are bound to fail as that is the nature of the ecosystem with youngsters enthusiastically trying out new ideas. But the government is loathe to give them orders, for instance in procurement.

“Innovation as a rule is not understood by the government. Its officers prefer to take tenders from traditional businesses or products and services that have been used over a period of time,” says a startup entrepreneur, adding that it is because of ‘the fear of failure’ of something new and untried.

A startup which is into defence application and security finds no takers in the government as it is ‘innovative’ but has bagged orders in the US and also Israel among many countries.

Ease of doing business

The new Companies Act is draconian, says Mariwala. “To deal with various compliances for that it stipulates is very difficult for a startup. There has to be more ease of doing business which has not happened,” she says.

The Modi government’s Rs 10,000 crore startup is a difficult door to get past as getting funds from this programme is next to impossible, says an analyst. So far, only SIDBI has been disbursing money through its India Aspiration Fund and Fund of Funds operations for startups.

The startup community needs government intervention, says a startup analyst. “Not all enterprises have the ability to raise money from venture capitalists, angels, etc. The startup entrepreneurs are making an impact with regard to elimination of poverty, disease and boosting education, among other innovative ideas that has translated into businesses. The government now has private enterprise solving the country’s issue,” she says.

Though the Indian government has made a start with the announcement of various programmes for the startup community, it has not been able to provide a thriving ecosystem with ease of funding, tax breaks, laws that promote the sector like Singapore, for instance. “Venture capitalists cannot fund early-stage scientific ideas, for instance. The government needs to step in and promote them and also help encourage academic-business initiatives for startups,” the analyst pointed out.

The government’s recently announced bankruptcy code is another source for worry. The new law enables banks to push for resolution/ recovery of the money from a troubled company within a period of 180 days, with a grace period of another 90 days if majority (75 percent) of creditors agrees. If the recovery doesn’t happen, then the company will be liquidated automatically.

“This will make it difficult for startup community,” says Harish HV, partner - India leadership team, Grant Thornton. Startups should be able to close down when their ideas fail to take off. It is pertinent that the government explains on who the Bankruptcy code can be applied to.

World over, governments use pension funds to invest in private equity. For instance, the Canadian Pension Plan Investment Board invests in India. Around 10 percent of the estimated 300 billion Canadian dollars of this fund is invested in emerging markets, with a plan to boost it to 15 percent over the next three to five years, a Mint report said.

The irony is domestic pension funds are not allowed to invest in domestic venture funds. India has a number of endowment funds which are with charitable institution, the largest being with the Tirupati Tirumala Devasthanam. But they are not allowed to invest in venture capital funds. This is one area the government must do a rethink about, say analysts.


Updated Date: Jun 05, 2017 11:32 AM

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