Four years have passed since Narendra Modi assumed power and report cards are being handed out. Some of those cards will take stock of goings-on in the startup ecosystem.
The startup sector has received a lot of attention, all thanks to a slew of programmes from the Modi sarkar.
India logged an addition of over 1,000 startups in 2017, strengthening its position as the third-largest startup ecosystem across the world, amidst intensifying competition from countries like the UK and Israel. This takes the total number of technology startups to nearly 5,200, according to a Nasscom Startup Report.
An April 2018 government press statement stated that as against 797 recognitions in fiscal 2016-17, some 7,968 startups received recognition in financial year 2017-18. Furthermore, it said that a total of 8,765 startups have been recognised by the Department of Industrial Policy and Promotion (DIPP) since January 2016.
While the Narendra Modi-led government has made a lot of promises to entrepreneurs, how many of these have really helped the startup sector? The jury is still out on this. However, the general consensus is that the Modi-led regime is the first government that has paid more than a nodding acknowledgment to entrepreneurship.
“Five years of UPA-II against four years of the NDA government and the latter has done well for not just the startup sector but also for micro, small and medium enterprises,” said Arvind Singhal, Chairman, Technopak Advisors.
The good news for the sector, industry players told Firstpost, is that the word ‘startup’ is understood for what it is. There is no ambiguity about what the word stands for. “Earlier, if a prospective entrepreneur quit a lucrative job to roll out a startup, he/she would find it difficult to convince family members about the decision more so because the world startup wasn’t understood. The government has -- through its schemes and following PM Modi’s talk about the sector – made the term a familiar one,” said Ashish Bhatia, founder, India Accelerator – that runs incubation programmes for startups.
For starters, the government’s schemes, over four years, have helped financial services develop in tandem with e-commerce growth. India is now one of the key markets for fintech firms as a result of the huge demand for services, said analysts.
"There’s strong support from the government by way of initiatives such as the Jan-Dhan financial inclusion program, the biometric-based Aadhaar initiative that aims to give every Indian a unique identification number, and the Unified Payments Interface. Policies such as Digital India have also made the average Indian more confident about transacting online. This has created a market for fintech companies," said Adhil Shetty, Co-founder & CEO, BankBazaar.
Strong India story
When Walmart said it will invest almost $16 billion in Bengaluru-based Flipkart, it showed that the American firm is convinced about India’s growth story. “This investment by the US retail giant tells us that Modi and his government have done a good job of selling the India story to the world. Investors believe in India’s economic growth,” said Singhal.
“Credit should go to the prime minister for encouraging global investors to invest in the country,” said Salma Moosa, Founder and MD, Startups Club -- a community driven company that hand-holds young firms. Moosa said she’s convinced that her Bengaluru-based firm could attract investors like Michael Marks only because Modi could successfully sell the India story abroad. Startup Club collaborates with Marks’ venture capital (VC) firm Innoventure Partners. Marks has investments in Twitter and in Elon Musk’s SpaceX.
Not everybody is gung-ho about the government’s startup push. “With good ideas, prospective entrepreneurs know whom to approach and where to go, thanks to the awareness created by the slew of programmes and policies by the government. But these are ideas and they do no amount to anything if the efficacy is not there,” Bhatia said.
Bhatia pointed to the SIDBI startup fund and asked as to how many startups were funded by it?
Red-tapism exits, which applicants have to pole-vault, and it’s not worth their time, he said. “Having acronyms and making announcements every Independence Day is good but it should work on the ground. There is not much fuel there and hence it is a huge obstacle.”
That said, the gains of the new policies and programmes would be reaped by the next generation of startups, Bhatia added.
The government’s landmark moves such as demonetisation and the roll out of the Goods and Services Tax (GST) impacted the sector, said Abhijeet Kashyape, CEO & Co-Founder, Monjin Interviews -- a digital video assessment platform where candidates meet interviewers basis their skills. But that’s not it. There are other issues in the startup ecosystem, like the angel tax for instance. Several startups have raised concerns about the move to tax angel funds under Section 56 of the Income Tax Act, which taxes funds received by an entity. As many as 18 startups have received notices from tax authorities.
The said Section states that when a closely-held company issues its shares at a price more than its fair market value, the amount received in excess of the fair market value will be taxed as income from other sources.
“This is not going to encourage angel investors to invest in a startup,” said Paula Mariwala, an angel investor herself. The angel tax is a deterrent, she opined. But the government and its various arms like the Niti Aayog, the DIPP and others “are proactively talking to players in the ecosystem to iron-out these issues,” she added
As the sector matures, the government needs to resolve bottlenecks in funding, ease of doing business and further simplify regulations impacting day-to-day business, said Raman Kumar, Chairman, CASHe. Given the lack of seed stage funds, it is a herculean task for most entrepreneurs to raise money.
While the Indian startup ecosystem has come a long way, "policies for startups need to be liberalised further", said startup accelerator Green House Ventures’ founder Vikram Upadhyaya. Capital gains tax incentives should be optimised for both domestic and overseas investors as the move would not only increase domestic investments in startups but would also enhance foreign inflows, Upadhyaya added.
And, “with talk of a new regulator [to monitor the startup funding space], it is not doing much to help boost the sector but will only drive away investors,” cautioned Harish HV, a Bengaluru-based management consultant. (https://www.livemint.com/Companies/PxKfZwsTbqRnDDYzenA4SI/Govt-weighs-move-to-set-up-regulator-for-startup-funding-ma.html)
If one were to look at the startup ecosystem, it’s evident that it has gone through various phases. Year 2014, the year Modi was voted to power, was when a number of startups were spawned. 2016 saw a lot of correction and 2017 was a year of consolidation, said Alok Ranjan, CEO, Flipcarbon, an HR firm.
"Year 2018 is going to be the year of highest focus in term of financial services and technology. Cities that will see traction will be Hyderabad, Chennai, Ahmedabad and Mumbai. We will see a boom in terms of opportunity. We need to give this government time, [as it] is catering to a 1.3 billion people, or one-sixth of the world’s population," Ranjan added.
The government now needs to focus on two things: job creation and boosting the agriculture sector, said Prakarsh Gagdani, CEO, 5Paisa.com, a discount broking subsidiary of IIFL.
“The markets have largely tracked economic development over the last four years and domestic investors have invested with trust. Going ahead, I believe there would be cautious optimism, especially in the run-up to the 2019 elections,” Gagdani added.
Its clear. While the government has given a much-needed boost to the startup ecosystem, it needs to do a lot more to make things more effective and seamless on the ground.
Updated Date: Jun 05, 2018 17:49 PM