One Year of Startup India - More Misses Than Hits

Wed, 25 Jan Pre-Open

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On 16 January 2016, just over a year ago, the Prime Minister Narendra Modi launched the ambitious Startup India programme to empower youth and promote entrepreneurship.

Startup India, flagship initiative of the Government of India, was intended to build a strong eco-system in the country for nurturing innovation and helping startups grow.

To meet the above objectives, the government announced an action plan based on three pillars: simplification and handholding; funding support and incentives; and industry-academia partnerships.

At its launch, Startup India, seemed poised to become a game changer for the startup world.

But did it live up to its expectations? We wondered.

So we looked into it now, twelve months down the line.

The main issue we found was the big startup fund. With a war chest of Rs 10,000 crore, the startup fund, managed by Small Industries Development Bank of India (SIDBI),grabbed a lot of media attention. The fund was supposed to invest in venture capital (VC) funds. VCs, in turn, would invest in start-ups.

So far, not a single rupee has been disbursed. Not, as one would guess, due to excessive paperwork or red tape. It is because the bank only puts forth 15% of the total corpus, while the VC has to bring the remaining 85% to the table. And, in 2016, VCs have struggled to raise that kind of money - as a result, funding has almost halved.

A second issue was that the government had initially mandated that VCs could only use the money to fund early-stage start-ups. This severely restricted the investment options of VCs, who then simply ignored the government's offer.

Also, there is the issue with the tax benefit. The programme assumes that start-ups will be profitable, and that too within the first three years. Yet, only a small percentage of start-ups succeed at all, and even fewer turn profits so quickly, making the tax holiday a redundant sop.

There are some positives as well. Initiatives like start up certification, roping in bodies like CBDT to give tax breaks to entrepreneurs, and setting up incubators have been praised. And the startup ecosystem feels much supported.

However, the reality is miles away from the promise.

Government policies and programme for skill development, innovation, and funding lack systematic and in-depth efforts to implement them effectively. The government must get down to these nitty gritties if the Startup India dream is to be realised.

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