In a series of tweets on 21st and 22nd July 2016, you expressed your reservations and criticism on the government’s role in encouraging startups. While it is never surprising to see you have reservations and criticism on any initiative of the Modi Government, it was indeed surprising to see you completely misinformed and ignorant about Startup India and the objective. I hope through this letter, I can give you a better understanding of the program. You may still be a critic, but that will be hardly be surprising.
Through Startup India, the government wants to play the role of a facilitator and not that of a big brother as you suggest. An ecosystem consists of four components: talent, culture, capital and regulation. When these components come together, startup communities exist and thrive. While status quo can be maintained, the Modi Government has taken a proactive approach to provide support to startups in each of these four components to create the enabling environment you speak of. Ultimately, market forces will decide which startup swims and which sinks. The startups that succeed may go on to become big companies, for the ones that fail, it’s important to help those entrepreneurs stand up, move on and break free from their past failure.
In the US, the Small Business Administration has launched ‘Startup America’ and pledged $2 billion for impact and early stage investing. In the UK, the government has launched the Seed Enterprise Investment Scheme providing tax incentives to individuals who invest in startups. In Singapore, the government provides tax exemptions for the first 3 years for new startup companies. Israel is another example of how governments play or have played a facilitative role in startups. Last Friday, former Israeli President Shimon Peres opened the Israeli Innovation Centre to highlight Israeli inventions and companies and also talk of new technologies that are being developed there. None of these governments take a big brotherly approach and neither does Startup India. It’s a different matter that you feel anything the Modi Government does has a big brotherly feel to it.
Governments have used tax incentives, subsidies and other benefits to encourage industries and promote investments. There are special rates for water and electricity for many industries. So why should startups not get any benefits? Indian startups are not limited to just one sector. They are disrupting various industries. Tax incentives and benefits are a great way to encourage them. Government is not regulating the act of starting up, it is merely qualifying those startups who are eligible to receive tax benefits. When there is a question of taxes being foregone or reduced, it is important to ensure that there is no scope for misuse. There is a well defined criteria to define a startup as an innovative one so that the tax exemption can be granted. If a startup either has a recommendation from a recognised incubator, is funded by an angel network or VC, or has been granted a patent, then it can apply to the Inter Ministerial Board for recognition. The tax exemption is not given for perpetuity. Moreover the exemption is given with the aim of encouraging startups to reinvest the profits. There is no startup cronyism here, if you meet the criteria, you receive benefits for 3 years. It will be a good idea for you to read the Startup India Action Plan. It will be enlightening.
Government is not a VC. It has created a Rs.10,000 crore Fund of Funds For Startups managed by SIDBI. SIDBI will invest in alternate investment funds registered with SEBI. The management of these funds is professional. Startups have also largely been excluded from the formal banking process, but with Startup India, a Credit Guarantee fund has been setup so that startups can access debt financing.
The government is putting robust infrastructure in place: incubators, innovation centres, research labs and parks. The government is also looking to foster a sense of community and contribute to the collaborative culture. A National Startup Fest will be held soon, followed by an International Fest later in the year. DIPP is putting together modules that will help entrepreneurs acquire the right skills and knowledge. The Startup Hub has received more than 13500 requests, with most of them being attended to. This is not regulation or control. This is facilitation.
The Modi Government is placed in a unique situation. It’s damned if they do and damned if they don’t. For the first time, the contribution made by startups is being recognised. Startups have the potential to create thousands of jobs and transform the economic landscape of India. Indians have been an enterprising lot, and this is a great boost to the ecosystem and the entrepreneurial spirit. Entrepreneurs are excited, and I hope after learning more about Startup India, you will be too.