Prime Minister Narendra Modi's startup initiative offers a workable blueprint for improving the ease of doing business in India. Modi's speech at the official launch of the Startup India scheme was received positively by many of the entrepreneurs who attended the event, but unless execution and impact keeps pace, the hype that has been generated can also recoil severely.
One of the proposals announced in the policy was that the administration would set up a venture capital fund with a total corpus of an impressive Rs 10,000 crore to be percolated down to startups over the course of four years. This investment peg will have an initial corpus of Rs 2,500 crore and will be managed by private industry veterans with Life Insurance Corporation of India as a co-investor.
However, before getting too excited by the prospects of the flow of this fund its worth considering that while this may be a novelty in the sense of its association with the first comprehensive nationally relevant startup policy, the government deploying the fund of funds instrument is not new. In fact, in the interim budget of 2014 a similar announcement was made. But it took almost a year for Reserve Bank of India to even release that money to Small Industries Development Bank of India (Sidbi). So questions are already being raised about the fund announced on Saturday (17 January).
Also, most of the exemptions given to startups are not really relevant or required. Tax experts point out that the 3-year tax holiday to startups is an announcement with no real benefit to the sector. Given the nature of this sector, startups hardly make profits in the first three years of their existence, so the question of paying taxes do not arise. As far as taxation is concerned one of the main demands from the startup ecosystem was relation of taxes on Esops. The tax on employee stock options (Esops), where a tax is levied on the income of the employee even before the company - that's allotted those shares - has generated any revenue or has raised capital. Esops is a major attraction for people joining startups as new companies are unable to pay high salaries. For attracting talent Esops form a vital incentive and a tax on it might not be desirable.
However, what may be relevant is government's support on partnership between industry and academia. The research done by academia can be used by the industry and the learnings from the market can be used by academia for further examination. Also, to bolster the startup ecosystem in India, the government is proposing to introduce startup fests at national and international stages. These fests would provide a platform to startups in India to showcase their ideas and work with a larger audience comprising of potential investors, mentors and fellow Startups. What would be interesting to look forward is how these events are different from the ones that are already organised by several industry associations and bodies such as CII, Nasscom and Ficci. As far as all these initiatives are concerned, the key is implementation and that too transparent implementation.
