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Start-Ups Need a Better Ease Of Doing Business

The fact is that we may have systems and laws in place, but the ecosystem needed to support start-ups is missing.

 

With a huge base of highly educated youth, willing to take an entrepreneurial risk, or rather at times compelled to take such risk for want of suitable jobs, together with a giant domestic market opportunity waiting to be exploited, India should ideally be brimming with prosperous start-up enterprises. With a support base of a formidable legal/banking/financial framework at least on paper, together with our dynamic homegrown talent, which is capable of interfacing with world markets. Indian startups should ideally capture global markets, but unfortunately, they do not.

 

India has the third largest base of start-up enterprises in the world. We have 14000 registered startups, not just in the popular IT sector, but also in other sectors such as healthcare, education, clean energy, agricultural technology, and even crime prevention, among others. These startups have provided over 140000 jobs so far and their numbers continue to grow. They, however, suffer from a lack of a suitable ecosystem and lack of capital, which hinders their growth and the ability to expand.

 

The Indian government recognizes the potential of our domestic start-ups, for our economic growth and for harnessing India’s deep and vibrant talent base, which for lack of opportunities at home, is often forced to emigrate overseas. The government has been showcasing the Indian market, its investor-friendly laws and improved ease+ of doing business, as it seeks to attract global capital into Indian startups. It is said to have approached over a 100 VC funds in USA, Japan, Singapore, China etc. and has also recently held a startup summit at Goa, to attract these deep-pocketed investors. But the response of foreign funds has been lukewarm, so far, despite the fact that international investors are attracted by the huge Indian market and they do agree unanimously that India is the place to be in.

 

The fact is that despite such raw dynamism and huge talent base, coupled with our giant domestic markets, investors have been a very cautious lot. That has to do with a host of factors which deter investors and that includes red-tapism, corruption, draconian tax laws, indifferent bureaucracy, and increasing cost of compliance, due to over-regulation. Hundreds of start-ups, who attract share capital from investors, at a premium, face huge tax demands, simply because the tax department considers the share premium to be bogus. These perverse tax demands not only hit the cash flow of start-ups but also kill their dynamism, by distracting the attention of the entrepreneurs. So is the case with many notices received under corporate laws and labor laws, many of which entail levy of huge penalty and prosecution. The fact is that we may have systems and laws in place, but the ecosystem needed to support start-ups is missing.

 

Till we do not set up an ecosystem, wherein the primary role of facilitator has to be of the government, and that does not act as an obstacle but encourages start-ups, our Indian startups will struggle and these dynamic entrepreneurs will prefer to migrate abroad. No wonder, last year, the American Consul General remarked at a seminar in Kolkata, that Indian startups prefer California to Bengaluru. That explains what lacks in our ecosystem for the startups.

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