THE HINDU | Article | Starting up to stand still? | JAN 18

Two lakh passes were sought for the Start Up India workshop at New Delhi’s Vigyan Bhawan with a seating capacity of 1,350, a good indicator of the interest in the action plan for start-ups unveiled by Prime Minister Narendra Modi after a nine-hour talkathon between Silicon Valley honchos, financiers, Indian unicorns and top government officials. Amidst the euphoria, at least one Silicon Valley CEO, B.J. Arun of July Systems, warned that India was witnessing a bubble similar to the heady dot-com rush of 1999-2000 in Silicon Valley with too much money chasing too few ideas. The high demand for passes to the event is probably a sign of that growing bubble. India, Mr. Arun warned, won’t recover as easily as the U.S. did after the bubble bursts, only to be told by his Indian counterparts that there is no bubble and even if there is, the fittest would survive.
That confidence is refreshing, coming from under-40 first generation entrepreneurs. The government’s action points seem laudable for starters, if not deep enough. They include Rs. 10,000 crore of funding for the next four years, tax-free and labour-inspection-free existence for start-ups for the first three years, speedier patent clearances with the exchequer footing most of the bill, and promises to fix taxation hurdles that deter domestic and global financiers from bankrolling new ventures in the coming Budget. That the government must intervene less for start-ups to succeed — Mr. Modi’s core message — drew the loudest cheers, followed by the tax breaks on start-up profits. The tax breaks fly in the face of the corporate tax reform being pursued to lower rates and phase out exemptions; but it is a headline-grabbing measure that won’t hit revenues as few start-ups would make profits in the first three years.

A bigger issue is the attempt to define the start-ups eligible for the sops, support and funding announced by the Prime Minister: firms set up in the past five years with an annual turnover below Rs. 25 crore, working ‘towards innovation, development, deployment or commercialisation of new products, processes or services driven by technology or intellectual property’. The mere act of developing products or services that do not have potential for commercialisation or have no or limited incremental value for customers would not be a start-up. Moreover, a start-up shall be eligible for tax benefits only after it is certified by an inter-ministerial board. Slotting something like innovation into a template may not click and until more details emerge, it just sounds like more red tape to clear to avoid some red tape. Smarter ventures would seek funding on their own and work without official sops, but the government must not lose sight of the need to fix India’s overall business climate. Failing that, even with tax sops, start-ups will continue to quit India and list or register elsewhere. Bubble or not, that’s one issue Indian unicorns are unanimous about.