The Start-Up India Action Plan, a comprehensive set of reforms and policies to encourage entrepreneurs to pursue innovation-based enterprises was launched in January 2016. Income tax exemption for a finite period, assistance in compliance and regulation, patent-filing rebates, funds from a Fund-of-Funds worth Rs. 10,000 crore, single window clearances, and MoUs with educational institutes and industry leaders for providing support and guidance were some of the features of this ambitious mission that also aimed at fostering creativity, innovation, economic growth, and job creation. But there is a need to look back and evaluate the performance of this much-hyped program.
Going strictly by the number on the Start-Up India website, till date 5,650 start-ups have been recognized and only 75 funded.
Most of these numbers have, however, been achieved during 2017. In the first year of the program, of the 1,368 applicants, only 502 were recognized as start-ups, and further, only eight early-stage start-ups were considered for tax benefits. Furthermore, the ‘Status Report’ published in October 2017 states that of the Rs. 10,000 crore Fund-of-Funds, Rs 605 crores have been granted to 17 Alternate Investment Funds (AIFs), which have funded the said start-ups.
Stumbling blocks aplenty
Despite the ambitious policy to support entrepreneurs, a closer look reveals several obstacles in the path of an entrepreneur from actually availing the potential benefits on offer. The first set of criticism and questions arose after the completion of the first year of the Action Plan. The government came out with a ‘status report’ which stated that 502 start-ups had been recognized, the Fund-of-Funds set up, and incubators and tinkering labs identified. The process of recognizing a start-up was put under scrutiny as was the criteria for being eligible for tax benefits.
The fears of the many inefficacies of the scheme have been confirmed lately. A survey conducted with thousands of entrepreneurs and start-ups by LocalCircles, a social media community platform showed that nearly 80 percent of them felt their businesses had not benefitted in any way from the multiple schemes of Start-Up India. Nearly 39 percent said that they had received income tax notices this year. This might come across as the antithesis of the action plan, which has provisions for tax exemptions for up to three years.
What’s more, 100 percent of the respondents wanted start-ups to be exempted from GST under reverse charge on services from abroad and also wanted billing from Indian offices of foreign companies to be made mandatory in India. But surprisingly, the single biggest challenge to the business was corruption or bureaucratic inefficiency (52 percent). It is ironic that despite two years of work in simplification of processes and easing bureaucratic hurdles, the challenge continues to worry entrepreneurs more than anything else.
Inefficacies: A closer look
While catch-phrases about funds worth Rs. 10,000, ease of doing business, single-window clearances caught the attention of the nation and created an environment of euphoria and positivity, the devil lies in the detail. For starters, there are multiple barriers that prevent entrepreneurs from fully embracing the terms and conditions set by the government. Take funding for instance, the reason that such a minuscule amount has been utilized so far is for various reasons. The fund only sanctions a part of the total amount to be raised, and the remaining needs to be raised by the VC; the VC needs to be registered with SEBI, and initially, there was a restriction on its use for early-stage start-ups.
Second is the pace of progress. While tying up with academic institutions to set up incubators to is a splendid idea, it is not happening at the speed with which it is required (to be fair though, 2017 was much better than last year in this regard). Although it will take a few more years for the program, to be successful, anyone acquainted with the sector can attest to the fact that ‘years’ are too big of a timeframe for start-ups to exist without support, financial or otherwise. Hence, expertise, guidance, funding and assistance are all on offer – but not nearly in the league of what is required.
Credit where it’s due, the government has tried its best to undertake damage control. From officially changing the definition of a startup to making it more inclusive, modifying the bankruptcy code to ensure a 90-day exit window, improving ease of business, providing rebates and assistance in patent certifications, making the recognition processes easier, procuring international partnerships and giving the issue importance in the public discourse, the government is trying its best to follow up on its commitment and put to action its goals. The fact that ‘Start-up India Hub’ managed to evoke a positive response, and managed to efficiently assist start-ups by providing advisory services on finances, business structuring, self-certification and improving management should be taken as a testament to the fact that if simple and easy access to information and services is provided, the stakeholders will avail it.
However, a lot more needs to be done. Despite the best intentions, the red-tape processes have not eliminated and there is a need to identify bottlenecks in the process of recognizing and granting benefits to the intended parties, and stronger support systems to build a foundational infrastructural support to entrepreneurs at a single platform. Collaborating and coordinating with the state government, private sector and education institutes will foster an environment of comprehensive assistance and guidance. In the push for all things digital, the government must not lose sight of non-tech start-ups, and maybe devise unique strategies to cater to them. Considering the fact that most entrepreneurs lack sound pre-investment research and data, and often have little hands-on experience, the government needs to build a support system that takes this into account and imparts more than mere technical or managerial skills during training. Lastly, the government also needs to ensure a more efficient way to implement its regulations and conditions, to allow for a more diverse set of beneficiaries to make the most of the program.
While the many benefits of a healthy start-up ecosystem are obvious: innovation, economic growth, job creation, skill development, and cross-industry collaborations, allowing it to remain underdeveloped will put to waste the immense potential of the country’s human capital. The government’s intention and commitment to the cause is laudable, yet it needs to prove that there is adequate seriousness to look within and build on its strengths and rectify its weaknesses.