India’s Fleeing Startups

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The reality is that much as the government may claim that it is supporting startups and MSMEs, the sector is neither convinced nor enthused

Mumbai: In her recent budget speech, under the section devoted to ‘Ease of Living’, the FM promised corruption free, policy-driven good governance and a clean and sound financial sector, which we would juxtapose with her later remarks that entrepreneurship has always been the strength of India and that the government recognizes the knowledge, skills, and risk-taking capabilities of our youth, who she said is no longer a job seeker, but a job creator. As the FM said, the fact is that India has the highest number of persons in the productive age group of 15-65 years and with a huge paucity of jobs, our youth has no option, but to turn entrepreneur. The FM further said that startups have emerged as the engines of growth for our economy and that over the past year she claimed that the government has taken several measures to handhold them and support their growth. In order to support these enterprises, she proposed a more liberal tax holiday and stock options tax regime for Indian startups. She also offered an expanded tax audit exemption for eligible entities in the MSME sector to reduce their compliance burden.

The reality is that much as the government may claim that it is supporting startups and MSMEs, the sector is neither convinced nor enthused. With the overall governance and ecosystem for startups in India continuing to be oppressive, the Economic Times reports that the queue of Indian startups rushing to register and eventually relocate abroad is getting longer. It says that stable regulations, subsidized tax rates, and increased global investor interest are prompting Indian startups to incorporate their business in countries like Singapore, USA, UK, UAE, and the Netherlands. China is being preferred by the pharma sector and Indonesia is attracting Indian manufacturers. Further, while Singapore and UK provide better tax incentives to startups, the UAE is preferred for being tax-friendly for business and capital gains.

With an obtuse tax system, a highly complicated GST regime and bottlenecks in raising capital and in the tough regulatory regime, startups are preferring to locate abroad. The tough tax, business and corporate laws with penal sanctions and huge difficulties in enforcing contracts mean that those enterprises which can relocate abroad will do so. The government has failed to provide a stable regulatory and banking ecosystem, to nurture our startups and MSMEs and their willingness to relocate abroad is clearly understandable and will only escalate further.

The problems that the sector faces are as under:-

Cumbersome, harsh laws, with huge compliance cost.

Complicated tax and corporate laws.

Most complicated GST in the world.

Insensitive/indifferent bureaucracy.

Red tape, delays, and corruption.

No stable legal environment.

Contingent criminal liabilities.

And where does the struggling entrepreneur have the time and money to battle it.


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