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The applause at the grand unveiling of the Start-up Policy was loud and sincere, and in it more than anything else, we could sense relief: that finally, the government was recognizing a young but fast-growing sector. Photo: AP
The applause at the grand unveiling of the Start-up Policy was loud and sincere, and in it more than anything else, we could sense relief: that finally, the government was recognizing a young but fast-growing sector. Photo: AP

Old car, new paint job?

The recently announced Start-up Policy is marked with discrepancies which adversely effects the Indian startup ecosystem and propagates red tapes

Entrepreneurs need freedom from the state," finance minister Arun Jaitley said at the grand unveiling of the Start-up Policy on 16 January at Vigyan Bhawan to an audience of young entrepreneurs. That unabashedly free-market remark set the tone for the government’s Start-up Policy launch. The applause at the venue was loud and sincere, and in it more than anything else, we could sense relief: that finally, the government was recognizing a young but fast-growing sector, and seemed to move away from the constricting approach that young companies have so far experienced in India.

It’s a pity that mere recognition has us fawning.

Pictures of fireworks accompanied the announcements, but there is some concern about what lies beyond the headlines and keywords and the light show. Let me preamble this by saying this: I remain hopeful. But three things need addressing.

The finance minister and Prime Minister Narendra Modi both made statements about the government getting out of the way of start-ups. But the definition of the start-up in the new policy document is an immediate chokehold: it requires a start-up to be driven by technology or new intellectual property (IP), and be recommended by an incubator. This immediately excludes a vast number of young small businesses across the country in sore need of the exemptions and simpler regulation on offer. So why are we introducing this caste system in the world of start-ups?

The government approach to qualifying start-ups for these measures is also interesting. The new Start-up Policy recommends an inter-ministerial panel—a group of gatekeepers who will decide who gets the cookie of the innovative start-up classification and who doesn’t. If the government has such faith in technology, one wonders why it didn’t automate much of the application and decision-making process rather than do it in the old school way, with a group of people guarding the doors.

Secondly, does the Start-up Policy go far enough in addressing what drives many Indian start-ups to register in Singapore and elsewhere, rather than in India? Entrepreneurs who choose to register in Singapore, for example, cite a variety of reasons, including the open-door policy of Singapore’s government agencies, which makes it easy to resolve issues with the relevant departments. In India, getting a meeting with the bureaucracy is time-consuming and extremely difficult, and the speed of processing still depends on personal equations. A ghar wapsi (coming home) of start-ups registered elsewhere will require much more effort.

Registration processes for businesses—which the Start-up Policy attempts to address—aren’t the only pain points that drive Indian start-ups to register overseas. IP protection-wise, Singapore is ranked fourth in the world while India is ranked 50. In decision-making by government officials, Singapore is ranked second, making it among the most transparent countries in the world in this regard, while India is at rank 32. The government needs to do a lot more to change this. Additionally, while constituting a panel to help facilitate patent applications is a good first step, India needs a more fundamental updating of its IP laws to enable both more enforcement and arbitration. Without this there’s not much point in making it easier to file patents.

While the policy has outlined capital gains exemptions as well as a three-year tax holiday, it still requires a start-up with even zero revenue to file yearly audited accounts and returns. This could have been easily addressed and these businesses exempted, like start-ups are in many countries.

India can no longer afford to play catch-up when it comes to business-friendly policies for this dynamic young sector. If it wants a policy that can bring it toe to toe with other nations in competitiveness, it needs an approach that goes beyond piecemeal reform and big number headlines. Else money and business will still go elsewhere.

Speaking of big numbers: the announcement of the 10,000 crore fund raises real and serious questions. As a director of a young start-up, it would be in my interest to support this, but should the government be in the business of providing risk capital? Is this a wise investment of taxpayer money in a country with significant issues in poverty, education access and basic healthcare?

This fund reminds me not of progressive government, but of the age-old policy towards public sector banks that has crippled India’s finances and encouraged crony capitalism. Many large businesses have defaulted on public sector bank loans, with unpaid bills in the thousands of crores. This bill gets stuck with the taxpayers, and as Reserve Bank of India governor Raghuram Rajan has pointed out, the total amount of bad debt these banks have incurred in the last five years would have been enough to send 1.5 million poor children to the top private universities in India. I would rather have had the government focus on other mechanisms, such as infrastructure support for start-ups, government accreditation for short courses in coding and digital literacy that would make quality technical talent available and entrepreneur visas for start-up workers that would reduce the travel costs incurred while building international markets and meeting clients; that would also help attract international talent to Indian start-ups. Equal access to the online Indian customer, for example, is one of the most important soft infrastructure pieces for young tech start-ups, and the government’s deafening silence on the net neutrality debate is dispiriting as some corporations try to tilt the data access game in their favour.

The government should stay out of using taxpayer money to fund the capital requirements of businesses. India should instead focus on the nuts and bolts of infrastructure access, simpler regulation and enforcement of its laws. This would make the big difference in India’s competitiveness. Else we will be driving an Ambassador of a different colour on the start-up highway, while others zoom past.

The budget is a second opportunity to address these gaps. So let’s hope that the government is serious about its ‘we unobstacle’ tagline.

The author is CEO and co-founder of Bengaluru-based FourthLion Technologies, which conducts regular opinion surveys for Mint using its high-speed polling technology instaVaani.

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