Boosting a dwindling startup ecosystem
When it comes to creating new jobs, global trends suggest that it is startups and not large enterprises that create new jobs
If the start-up wave catches up, we should have approximately 1,50,000 new jobs this year. This initiative will truly be the game changer
In a bid to encourage the youth of the country to be job creators and not just job seekers, the Prime Minister unveiled the “Start-up India, Stand up India” initiative. The announcement comes at a time when job outlook surveys have been optimistic about the year ahead, but the role of startups in driving job creation is being viewed with increased circumspection based on recent instances of employee layoffs and curtailed operations. This article will outline the prevailing jobs trends in the startup ecosystem and highlight the benefits of this initiative.
According to a survey by MyHiringClub.com, in the year 2016, more than 10 lakh employees are expected to be added. Manpower group’s Employment Outlook Survey rates India as the most optimistic country amongst 42 others in terms of hiring plans for the first three months of 2016. A study by NASSCOM predicted that “by 2020, a total of 2.5 lakh people will be employed by technology startups and product companies”. However, over the last few months, the mood in the start-up ecosystem has been ambivalent. In an interview to ET, Harpreet Grover, CEO and Founder of CoCubes noted that “In the white-collar space, 2015 saw a huge impetus from highly funded start-ups with the largest ones ramping from a few hundred to a few thousand people. If the funding continues in 2016, we will see more jobs being created there". According to a recent report by CB Insights and KPMG, venture capital investments in India’s start-ups nearly halved to Rs. 10,000 crore in the fourth-quarter 2015 from July-September. Global investors are cutting back on Indian internet start-ups after almost two years and the repercussions of such moves are being felt widely.
In October 2015, it was reported that Zomato, the country’s biggest startup in the food-ecommerce segment had axed a tenth of its 3,000 employees owing to insufficient revenue growth. More recently, Grofers, the country’s most funded hyper local start-up announced that it will shut down its operations in over nine cities. A survey by Growth Enabler points out that at least 3,270 employees lost their jobs across 20 startups it analyzed in six months preceding December last year (each of the companies had at least 100 employees, one round of external funding and 6 months of operations). The loss of employees accounts for as much as 18 percent of the employee base of these companies – with over 40 percent of retrenched employees and 35 percent of startups coming from food tech companies, followed by 30 percent layoff in the ecommerce sector. About two companies surveyed shut down operations. The reasons for layoffs included the inability to meet growth projections (30 percent), inaccessible institutional funding for follow-up rounds (20 percent), business model pivot and the need to streamline operations. The effect has been also felt in the placement season this year, while the number of startups participating in IIT-Madras’ placement season almost doubled, it was observed that the students were not very enthusiastic to attend startup interviews owing to news of mass layoffs. “Last year students were more enthusiastic to join start-ups. This time they seem to prefer core companies more” said a placement officer to a leading newspaper. It is in this context that the government’s action plan to boost startups is important; it is pitched at a time when India desperately needs growth and jobs.
The initiative overall is focused on providing support to the startup ecosystem as a whole with the goal to create a conducive environment to job creation. The highlights of the initiative includes a Rs. 10,000 crore fund for startups – the initial corpus of which will be Rs. 2,500 crore, along with a credit guarantee fund for startups. A new tax and compliance regime for startups will include tax exemption for the first three years and concessions on capital gains tax.
The launch of this initiative has been met with a mixed response, while many leading industry experts feel that it is the step in the right direction, others have pointed areas with room for improvement. Kunal Bahl, CEO of Snapdeal said “It is heartening to see the government actively supporting the startup ecosystem, having recognized their potential to fuel economy and create new age jobs. The government has taken a consultative approach towards drafting the startup policy and we are confident that the policy will create an enabling and conducive environment for entrepreneurs and investors.” Manish Kumar, the CEO and Co-founder of GREX noted that when it comes to job creation “what is more important is the quality of jobs created and its impact – both direct and indirect.”
The startup initiative is expected to do four things:
- Make compliance easy: A number of measures introduced in the initiative are geared towards easing compliance burden for new startups. In fact, the compliance regime will be based on self-certification and there will be no labor inspections for the initial three years. Starting April 1st, the government will launch a mobile app that will enable companies to register their startups in a single day. It will also create an easy exit option under the Bankruptcy Act, so startups can exit within 90 days. Apart from this, the startup India hub will be the single point of contact for interactions with the government”. Ashish Goel, co-founder and CEO of Urban Ladder said that “Clarity of listing norms, faster clearances and inclusive growth will encourage entrepreneurs to build innovative businesses”
- Increase investor confidence: Measures to improve the ecosystem is likely to improve the investor confidence among both the investor community in India as well among foreign institutional investors. Commenting on the potential of the Indian startup market Softbank’s Chairman and CEO, Masayoshi Son said “Every market is different. I truly think this is really the beginning of a Big Bang for India”. Rajesh Gandhi, partner, Deloitte Haskins & Sells, said narrowing the gap between tax treatment of listed and unlisted shares will be beneficial to investors wanting to invest in start-ups. “This will certainly help to boost investments including foreign investment in start-ups,” he said.
- Increase jobs: To keep the momentum going in the Indian economy, the country would need to create at least 1 crore new jobs each year. Saurabh Shrivistava, the chairman of the India Angel network, points out that when it comes to creating new jobs, global trends suggest that it is startups and not large enterprises that create new jobs. According to People Strong CEO, Pankaj Bansal “If the start-up wave catches up, we should have approximately 1,50,000 new jobs this year. This initiative will truly be the game changer.”
- Foster innovation and creativity: With the goal of encouraging innovation, about 5 lakh schools and 10 lakh students will be involved in core innovation programs. National and International startup festivals will provide visibility and the Atal Innovation Mission for the promotion of research and development will include 500 tinkering labs, 25 public-private sector incubators and 31 innovation centers at national institutes, 7 research parks and 5 new bio clusters.
During the launch, the Prime Minister also encouraged entrepreneurs to look beyond IT, “Start-up is not just about mobiles and laptops… Start-up does not only mean a company with billions of dollars of money and 2,000 employees. If it is able to provide employment to even five people, it would help in taking the country forward. Young people have to change their mindsets from being job seekers to try and become job creators. Once you become a job creator, you will realize that you are transforming lives” While the initiative has created a buzz and a positive sentiment in the startup ecosystem, the challenge lies in its implementation.