Concerns with 'Start-Up India'

What is the issue?

Fund allocations made under the Start-up India initiative show that the ambitious scheme is far from being a success.

What is the Start-Up India plan?

• The start-up fund of funds was launched some three years ago by the Prime Minister to help early-stage entrepreneurs.
• The objective was to create a lively ecosystem for entrepreneurs.
• It aimed at making allocations to start-ups to be routed through venture capital firms.

How has it performed?

• Despite the gaps, there is a growing number of unicorns (start-ups reaching a valuation of $1 billion or above) in India.
• Eight of them became unicorns in 2018, which was the highest addition in a single calendar.
• India is the third-largest start-up destination with an estimated 7,700 tech start-ups.

What does the recent estimate show?

• The recent estimates on the scheme were given by the Small Industries Development Bank of India (SIDBI).
• SIDBI manages the fund of funds for the Start-up India.
• It has so far committed Rs 1,900 crore, which is less than 20% of its Rs 10,000-crore corpus to venture capital firms.
• This is an indication that the government has fallen short on delivering its promise.

What are the policy shortfalls?

• Not just Start-up India, other initiatives such as Make in India and Swachh Bharat have not been fully successful despite their potential.
• While business and politics often go hand in hand, schemes such as Start-up India should have had a clear vision and goal.
• For Start-up India, the focus should have been on nurturing innovation as well, rather than just on disbursing money.
• The idea of just a money bag without any attention to innovation is out of sync with entrepreneurship.
• Besides this, the Central Board of Direct Taxes (CBDT) recently asked start-ups to pay the angel tax based on the valuation of firms.
• This has adversely hit the mood in the sector, despite assurance of no coercive action till the matter is looked into by an expert committee.
• Also, the government proposal to stop cashback and deep discount sales by e-commerce firms has added to the overall gloom.
• As large number of new start-ups could get into the e-commerce space, this decision acts against the spirit of entrepreneurship.

How is it elsewhere?

• In other leading start-up destinations such as the UK, Israel and the US, institutional backing comes with the right focus on cutting-edge research and innovation.
• For instance, in the US, the federal government does not usually offer grants for starting or growing a business.
• It, instead, plays an active role in technology development among other areas.
• In addition, business grants are available through state or local initiatives.

• Also, there are competitive awards-based programmes, encouraging small businesses to pursue R&D projects potential of commercialisation.
• India should now make a revised assessment of the scheme to capitalise on its true potential.

Source: Business Standard