Modi 2.0 – What Startup India wants?
Sanket Shah
Founder @ Cognoscent Ventures | Startup Investments | Serial Entrepreneur | Venture Builder | Fund Management | Investment Banker | Corporate Strategist | Growth Enabler
The Economy is the start and end of everything. You can’t have successful education reform or any other reform if you don’t have a strong economy.
- David Cameron
Indians have re-elected Modi Ji once again with a mammoth votes. The wave was not of BJP or NDA but it was of Modi Ji. Perhaps in my lifetime I haven’t seen any political leader getting so much of love and affection from across the nation and world. Though in light of democracy, little disappoint has caused with a thought as country of 1.3 billion people could not produce a strong opposition leader who can form an opposition and remain to values – functioning of democratic nation.
With a strong mandate, we the people of India have started expecting even more from Modi 2.0. On 31st May, ruling party has announced a list of cabinet ministers, independent change and minister for states. As a strong believer of equality and fan of Bollywood movies, and contrary to traditional thought process, I loved the step of modi government of following popularity of Ki & Ka movie for handing over Home ministry to Shri Amit Shah and Finance ministry to Smt. Nirmala Sitharaman (On a lighter side). Though post last budget speech of Mr. Piyush Goyal, then interim Finance Minister, was highly speculated to be a Finance minister. There are quite a few challenges before Modi Government in Second Phase as well but road will be lil less troublesome amidst clear majority to party and alliance.
As quote mentions above, economic growth to the country is everything and every Indian expects magical upward movement from 5 years low GDP growth of around 5.8% to again above average of last 5 years. Resignation of two RBI Governors, Mr. Raghuram Rajan & Mr. Urjit Patel and also a resignation of Mr. Arvind Subramaniam, Former Chief Economic Advisor to GoI has created many speculations over government’s relationship with Economic Powers in India.
Again, reiterating the phase of economy is slightly picking up on Innovation Driven economy and proposed to move towards Wealth Driven economy (Stages of Economy by Micheal E. Porter), thrust of government should increase more on innovations. Country like India will have an edge through Innovations over other countries due to large consumer base, demographic dividend leading to an entrepreneurial stint in the country.
Start-up Reforms expected
Modi 1.0 have announced very ambitious “Startup India Standup India” scheme under which many startups have registered themselves with DIPP with an expectation of leveraging larger benefits from government.
Fund Distribution
Rs. 10k Crores of Fund of Fund, managed by SIDBI along with Funds by LIC has not been fully utilized yet. Due to lot of infrastructural hurdles, legal and financial challenges, evolving startup ecosystem who’s yet to attain a level of maturity has also affected a disbursement of funds.
In BJP manifesto, party has announced additional infusion of Rs. 20k Crores for the policy wherein the challenges will remain as it was.
Angel Tax
In furtherance, highly debated issue of Angel Tax is also yet to be resolved completely and tax benefits to Angels and Startups either through Inter Ministerial Board (IMB) or Central Board of Direct Taxes (CBDT) is also needed to be smoothened. Yet very handful of startups has been able to achieve tax breakthrough from government.
Investor Protection
Major boost to startup regime is possible to infusion of funds by investors (either individual or institutional) on a regular basis and distributed to a larger proportion rather than only top few startups of every domain funded heavily and consolidation of activities happens at the top of pyramid. In order to motivate more HNIs/UHNIs/Corporates/Institutions to consider Startups investment, government or regulatory authorities should come up with some norms in order to protect their investment and provide some tax sops like Angel Tax. I welcome a step by SEBI to register Angel Investors in order to only those with risk appetite get into this game (Nothing less than Game of Thrones).
Exit mechanism through Listing
Stock Exchanges have come forward to facilitate exit to investors through platforms like Institutional Trading Platforms (ITP) which is not very popular and also Startup Listing platform which provides ease of exit through listing or off-loading their stakes to public. Stock Exchanges, SEBI and Ministry of Corporate Affairs may jointly put an effort to accelerate this window in order to provide better comfort to startups and investors both.
Fund raising in AIFs
Alternate Investment Funds (AIFs) approved by SEBI typically scouts for equity investment opportunities in India. While collecting a pool of funds for AIFs, it is mandated for any AIF to accept minimum investment capital of Rs. 1.00 Crore. While, Government / Regulators can reduce that amount to around Rs. 25.00 Lakh with a requirements to be satisfied as qualified investor (Angel Investor/Corporate Investor).
Crowd Funding Platforms
SEBI is in the process of developing a crowd funding regulations which were proposed before 2014. Globally, regulated crowd funding platforms are becoming a boon to startups while raising funds. As per Indian regulations, Crowd Funding is not allowed for Private Limited Companies for raising equity. Wherein, Public Limited companies are not considered as Startups as per the current definition adopted in India.
CSR in Social Venture Funds
Category I AIFs cover Social Venture Funds also which are expected to create larger economic and social impact through investment mechanism generally for longer gestation and high impact ventures. As per Companies Act, 2013 Corporates achieving certain milestones are mandated to spend 2% of their Net Profits towards Corporate Social Responsibility (CSR). If CSR is allowed to be spent in Social Venture Funds with a mechanism of re-investing surpluses back to Social activities as prescribed by authority then it has a potential to create rippling impact of the same funds.
Working Capital Funds to Startups
In India, majority of the startups fails due to lack of working capital when they start growing immediately after initial seed from different state governments or foundations or incubators, need more funds to grow. Typically for marketing, more human resources, production capacity etc. which are non-fixed or tangible in nature and startups do not get any support from commercial banks. In absence of any primary securities to be created due to working capital requirements, banks are reluctant to support even under schemes like CGTMSE for Collateral free loans floated by GoI under implementation of SIDBI.
Infrastructure Capital to Incubators
In order to create a robust infrastructure mainly to conduct a basic research and development activities by startups, Department of Science and Technology (DST), GOI provides funds once approved as Techno Business Incubators (TBIs) or by Niti Ayog under Atal Incubation Centers (AIC) but they are disbursed to a limited extent and also to a highly limited number of institutions. Country as India, which lives more in Ties III and Tier IV Cities, needs more of TBIs and AICs to be supported by Governments (either State or Central).
Conclusion
Above list is just an indicative and not exhaustive. But, startup ecosystem has to work more intensely to make dream come true for India to be developed nation. Industry, Government and Academia partnership is a way to grow economy and address a fundamental questions of economy especially unemployment.
(p.s views expressed are strictly personal and do not intend to criticize efforts by government and regulatory authorities)