Experts seek easy exit for investors, clear bankruptcy laws in India
The subject of easy exits becomes relevant in the context of the deadpool list of start-ups in India
New Delhi: For a country obsessed with start-ups, there is little support for those who fall by the wayside. To tackle this and foster the right atmosphere for start-ups, panellists at the India Summit organized by The Economist magazine called for easier exits for investors and clear bankruptcy laws for companies.
The panel consisted of Amitabh Kant, chief executive, NITI Aayog; S.D. Shibulal, founder, Axilor Ventures; Jay Chen, chief executive, Huawei India, and V.T. Bharadwaj, managing director, Sequoia Capital.
A bankruptcy law is already in place, but the Indian society has not learnt how to accept failures, and it requires a change of mindset to accept them, Kant said.
Earlier in May, the Rajya Sabha passed the Insolvency and Bankruptcy Code 2016 that covers individuals, companies, limited liability partnerships and partnership firms. The law is expected to ensure timely settlement of insolvency.
“Also, there are many companies that raise multiple rounds of funding, but down the line, if the idea does not work, and the company is expected to distribute back the capital (to investors) with haircuts (returning less capital than what was originally invested), it is not easy to do that," Bharadwaj said.
The subject of easy exits becomes relevant in the context of the deadpool list of start-ups in India, a list of fading or dead start-ups compiled by start-up tracker Traxcn in August.
Bloomberg reported that the list identified 800 such start-ups in various segments of technology such as e-commerce, online education and mobile software.
According to Kant, the Union government should make a “competitive system" among states, making them vie with one another on innovation, education, health and other criteria.
The government is already working to encourage entrepreneurship through initiatives such as Start-up India launched earlier this year, but the panellists had some additional suggestions as well.
“The government should restructure processes (by using technology), like there is the Meri Sadak (mobile) application, one simple app through which citizens can send instant feedback (regarding pace and quality of work of Pradhan Mantri Gram Sadak Yojana to the concerned department in state governments)," Kant said.
In addition to the government’s role in the innovation ecosystem, Bharadwaj said the government should increase its focus on research and development and education, where the private sector has a smaller role to play.
Education emerged as the starting point of discussion to promote innovation. The panel agreed upon the need for radical change in the education system to fuel entrepreneurship that will create more jobs.
“The start-up (ecosystem) in Silicon Valley is 35 years old and in India, it is still growing", said Shibulal. Kant added that challenges in India are very different from what they are in the West and so, the nature of innovation will differ. “The innovation needs to solve problems like sewage, shortage of drinking water and technology that builds flyovers faster," he said.
When Chen was asked about his experience with Indians who are working in Huawei India’s innovation centre in Bengaluru, he said the company chose Bengaluru because of the quality of talent available there. “Many of our employees from China come to Bengaluru to learn from them (Indian engineers)," he added.
The panel acknowledged that for all the government-led initiatives to foster innovation, the key to success lies in execution. “The government may have simplified processes to set up (a business), provide them with tax incentives, partnerships with academia, but it (the success) all lies in the execution," said Kant.
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