Why Indian Startups Love Singapore
India’s startup ecosystem is the world’s third largest after the United States and China. Bengaluru, Gurugram, Noida, Mumbai and Hyderabad are buzzing with new startups in fields as diverse as online education, artificial intelligence, big data, logistics, payment gateways, foodtech and regional language video streaming.
But there is a cloud overhead. It’s called over-regulation. Despite the Indian government’s efforts to ease the process of registering a company, startups still face a mountain of bureaucratic hurdles. In Singapore it takes 30 minutes – that’s right, 30 minutes – to set up a company. No wonder Indian startup entrepreneurs, besieged by Angel tax notices (reluctantly withdrawn) and a slew of clearances needed to set up an enterprise, are choosing to take their business to countries like Singapore.
Consider the story of Navin Suri. As Rachjel Chitra, writing in The Sunday Times of India, reported: “For Navin Suri, who was heading Bank of New York Mellon’s asset management business in Hong Kong, Singapore was the obvious choice when it came to setting up. He said he had always heard about the ‘ease of doing business’ in Singapore but even he was taken aback when it took him less than 30 minutes to set up his data technology company. From getting his registration number to signed MoUs, it all got done between 10.40 and 11.10 SGT. ‘I even got a prompt from the government with the suggestions as to how I could set up a website’, says Suri, co-founder of Percipient.”
Singapore has achieved a fine balance between strict regulation and fast delivery. The corruption-fee environment and tough, transparent and quick audits help start-ups establish credibility with customers and potential investors. Other countries in East Asia are emulating the Singapore model and attracting droves of Indian startup entrepreneurs. As Rachel Chitra adds: “Governments in Southeast Asia are now offering a range of mentorship, seed funding, introduction to investors, faster regulatory clearances and a hands-on approach to solve any and all problems. From funding their laptops (if they are a small startup to providing salary subsidies for experienced hires (aged 60 and above), the business-friendly atmosphere is omnipresent. Industry sources say one in seven startups in Southeast Asia are started by Indians or Indian-origin CEOs. ‘In our Singapore Fintech Association, three of ten board members are Indians, the others are Chinese or Malays,’ says Varun Mittal, board member, Singapore Fintech Association and founder of HelloPay, which was sold to Alibaba Financial. ‘Seeing the exponential growth of our cluster of 350 startups, the Monetary Authority of Singapore actually organised an event in Mumbai and Delhi this February to further highlight opportunities for those who want to set up base here."
Over-regulation in India kills silently but swiftly. An example is the Insolvency and Bankruptcy Code (IBC) which has been strangulated by judicial delays. Promoters have begun to re-bid for their bankrupt companies through front organisations or to put a legal spoke in the slow-turning judicial wheel just as a resolution of a bankrupt company is imminent. To muddy waters further, a recent forensic audit has found that over 200 companies facing insolvency proceedings engaged in fraudulent diversion of funds. The IBC is in danger of becoming a shelter for companies that cannot repay lenders.
Two likely high profile entrants are Jet Airways and Reliance Communications. Jet could have been saved last September when the Tatas were willing to buy it at a reasonable price, provided founder Naresh Goyal stepped down. He refused and today suffers the ignominy of seeing the airline he founded being shunned by buyers. It will end up in insolvency proceedings in the National Company Law Tribunal (NCLT) where its debt of over Rs. 11,000 crore will be pared down drastically. Jet will eventually be sold at a fraction of the value it commanded as recently as two months ago. The Tatas may be interested in picking up grounded Jet at a bargain basement price, far lower that what they were prepared to pay seven months ago. Having recently acquired majority stakes in both Vistara and Air Asia, the Tatas could challenge Indigo as a dominant player once it pockets Jet’s coveted slots in London Heathrow, Amsterdam and Brussels.
The same script could play out in Anil Ambani’s Reliance Communications. While brother Mukesh Ambani was willing to pay over Rs. 22,000 crore for Reliance Communications’ assets and spectrum, he will be able to get those same assets at a fraction in a distress sale under the IBC in the NCLT. Who will bear the loss? Lenders with over Rs. 47,000 crore in debt face a big haircut.
India’s real problem lies is the detritus of socialist thinking that pervaded the Jawaharlal Nehru-Indira Gandhi years. Nehru once berated a bemused JRD Tata over the insatiable desire of business enterprises to make profits. To me, profit is a dirty word, Nehru told JRD. That thinking still occupies niches in North Block’s labyrynthic corridors. It leads to the sort of over-regulation the rest of the world has grown out of.
Over-regulation has another downside: it affords discretionary power to authorities. Corruption and “settlement”, in time-honoured Indian fashion, are the inevitable result – a throwback to an era India should have left behind in 1991. When United States President Donald Trump rails against India’s high import duties, he is for once right: Indian trariffs are far too high and tinkered with far too often. The victim is certitude in taxation laws which entrepreneurs seek.
There is a reason e-commerce pioneers like Flipkart moved their holding companies to Singapore years ago. When Walmart came calling, due diligence was easier and quicker. The finance ministry’s constant tinkering with import duties and tax rules forces entrepreneurs to spend more time on wasteful administrative work than on business innovation. A recent effort by the government to disallow limited liability partnerships (LLPs) from engaging in manufacturing was rescinded within days following outrage by entrepreneurs who said that not only would existing LLPs involved in manufacturing be hit but a negative signal would go out to new startup LLPs.
Indian startups have world-leading potential in innovation and skills. It would be a pity if muddle-headed over-regulation slowed their rise.
