Why 'Startup India' could not kick start the startups

In a move to give a boost to start-ups, the government launched the ‘Startup India, Stand up India’ initiative in January 2016 to promote bank financing for ventures and startups to boost entrepreneurship and job creation. It aimed at restricting the role of the state and getting rid of license raj, permissions for land, etc and also promote entrepreneurship among schedules castes and women. However, it has failed miserably to deliver. Since the launch, only around 1400 applications have been received. Among all these applications, only 500 or so have got approval from the Department of Industry Policy and Promotion (DIPP), the organizing body.

It is reportedly being said that it has become easier to access funds through relaxed rules for angel funds and foreign venture capitalists (investors who provide capital to or support startup ventures), etc. However, no names of the startups or any other beneficiaries are known in the public domain. The government did not give any guidelines on what kind of startups qualified to apply for these funds. No one knows which agency/body is disbursing the funds and in fact hardly any venture capitalists have been even contacted yet.

Courtesy- Financial Express

There are several reasons that explain the failure.

-The terms laid out in the scheme are not clear.

-Parameters on which a startup will be assessed are not defined precisely

-what kind of startups are eligible to apply for benefits of the scheme is also not mentioned clearly and ;

-concerns or risk factors involved for Venture Capitalists are undefined and unanswered. Moreover, the benefit in terms of a tax holiday (temporary reduction or elimination of tax) for three years is not going to be useful, for a startup does not even earn as many profits as to avail a tax holiday. Also, mere monetary hand-holding (extensive assistance in the form of money) from the side of the state is neither sustainable nor efficient and advised.

Besides funding, startups in India face primarily two significant hurdles. One, relating to corruption, red-tape( too many layers of bureaucracy involved resulting in extremely long delays) and inefficient approval systems (delay in issuing of licenses or permissions, complex paperwork, etc) and the other being the stronghold of powerful corporate houses that oppose or kill the startups that challenge them. Thus, the focus of the government should be to stress on policy measures to improve the ease of doing business for these start-ups by introducing structural reforms like reducing the layers of bureaucracy, making the process of availing permits and licenses easier and faster, making good use of e-governance and help save entrepreneurs time and energy, fixing the labour laws, speeding up the judicial system by adding more courts to look into corporate disputes, etc that facilitate free and fair competition.

The nurturing and growth of startups is best left to incubators (companies that help new startups nurture through technological and financial assistance) and accelerators (companies that help startups expand or enter global markets) who have all the required expertise, experience, resources, connections and tools to work on the very idea and technology and also bolster growth in less time. Their success rates are also significantly higher.

For instance, the Microsoft Accelerator, based in Bangalore, has funded many startups like Altizon,  Healthify, Voonik and DailyRounds. Till now, 83 startups have had an average funding of around $1Mn. 80% of their accelerated startups have been funded. Similarly, Tlabs (owned by Times Group), Amity Innovation Incubator, CIIE IIMA (owned by IIM-A), are some examples of highly successful accelerators and incubators that have helped hundreds of startups like Inshorts, Nextgen, Vyoma, etc in receiving adequate funding and provided them with relevant and cheap technology, mentorship, et al.

Hence, the role of the government in facilitating a successful startup culture should be in making the general administrative environment hassle-free for businesses to flourish and also providing commensurate tax reliefs and related incentives to local incubators, accelerators and investment firms that support startups. This will also attract more foreign investment in the country.

According to a NASSCOM report, with 140 incubators and accelerators, India now ranks third in the world. But that’s far from the count in the top two, 2400 and 1500 in China and the US respectively. Thus, it’s a long way to go in bolstering the growth of these assisting bodies and improving the ease of doing business that will actually in effect help startups to grow and yield concrete results.