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Prarambh, Indian Startup Ecosystem, and Modi Government

The Indian Prime Minister Narendra Modi had announced a Startup India seed funding worth 1,000 crores INR to allow Indian startups to secure initial funding on Saturday (1).

Narendra Modi stated that the funding would help new startups initiate and grow at the Prarambh Startup India International Summit. He added that the Indian government, going ahead, will also help startups to secure debt capital by offering guarantees.

Additionally, Modi stated that India is attempting to build a startup ecosystem that would be based on the vital principle of the youth, via youth, and for the youth.

While speaking further, Narendra Modi stated that today, India has the third-largest startup ecosystem globally. It has more than 41,000 startups, and out of which over 5,700 startups are in the IT sector. Over 3,600 startups are in the health sector, and nearly 1,700 startups are in the agriculture sector, stated the PM.

sectorwise Indian startup split

Modi also emphasized that these startups are transforming the ‘demographic characteristics of businesses,’ ‘the biggest USP of the startup ecosystem is its diversification and disruption capacity,’ said the PM.

With the GeM portal, local startups can get the opportunity to participate in government tenders at par with big entities.

According to Modi, at least 8,000 startups have registered on the portal so far and has completed business worth over 2,300 crore INR. He also admired the startups for coming up with groundbreaking solutions during the COVID-19 pandemic and supporting the Indian government’s efforts to normalize economic activities.

“When big organizations struggled to survive worldwide amid the coronavirus pandemic, startups power the country’s drive for being self-reliant. They stood up to fulfill different demands during a difficult time. From e-health to e-grocery and education, startups took care of everything and were not restricted to metro cities anymore. They powered India’s drive for being self-reliant amid the pandemic when big entities were thinking about survival.” – Narendra Modi, The Prime Minister of India.

Modi added that today, women directors are in 44% of recognized startups in India, and many women are also working in them. These days, youth coming from the general economic background can bring their talent and thoughts to the ground, and we all can see the results in front of us (2).

Over ten startups from various sectors, including beauty and payments, turned unicorn in 2020 compared to 09 in 2019 and 04 in 2014. Notably, at present, there are more than 30 startups in India valued at over 1 billion USD (3).

Piyush Goyal (4), the union minister for railways, consumer affairs, commerce, and industry, stated on Friday, the first day of the two-day event, that skill development would play a vital role in giving confidence young entrepreneurs to emerge through failures. He also added that the present generation has an immense entrepreneurial streak since they look for job creation instead of being a job seeker.

The two-day Prarambh Startup India International Summit, hosted by DPIIT, the Department for Promotion of Industry and Internal Trade, Ministry of Commerce and Industry, and the Indian Government, has also marked the 5th anniversary of the Startup India initiative.

The current Prime Minister of India had launched the initiative on January 16, 2016. With that, let’s take a journey back and see what the Modi government has done for the Indian startup ecosystem so far.

Positive Contributions

The Indian Prime Minister, Narendra Modi, known for being vocal, tech-savvy, and dream weaver’s popularity has only increased over the past few years. In his second term, which began in May 2019, BJP won 21 more seats than 2014’s general election (5).

However, his unique pull is not very difficult to understand. For over six years, most of his welfare and development schemes, and other fast-forward thinking projects such as an inclusive digital payment ecosystem and e-vehicle infrastructure, have been credited to PM Modi and his government.

Several of his initiatives, like Kisan Samman Nidhi for the welfare of nine crore Indian farmers, affordable housing, direct subsidy transfer to the underprivileged bank account, financial assistance for micro-businesses under the Mudra Yojna, and never-before initiatives like Clean India, Digital India, and Ayushman Bharat has evoked enough trust among the citizens. It has helped Modi to buck the anti-incumbency sentiment across the nation.

Narendra Modi has never failed to ignore the startup community either. Since 2014, the Modi government has announced new programs and policy reforms such as tax holidays, angel tax abrogation, easy market listing, startup-specific funds, and many other schemes. He also promoted the ruling BJP’s election manifesto (6), ‘minimum government, maximum governance.’

Startup India Initiative

Narendra Modi’s government’s flagship scheme for startups, Startup India, launched on January 16, 2016, has crossed 27,000 startup registration. Reportedly, the number has tripled from 8,939 registered startups till March 2018 (7).

According to the MyGovIndia tweeter account, each recognized startup has 12 people as employees on average. The number of recognitions or registration each day by DPIIT is 26, according to the Indian government investment promotion agency, Invest India (8), last year.

Startups recognized under DPIIT get self-compliance under three environmental and six labor laws, exemption from paying income tax for three consecutive years, along with exemption on capital gains and investments more than fair market value.

They also get up to 80% rebate in filing patents and winding up within 90 days under the Insolvency and Bankruptcy Code, 2016.

It is worth highlighting that the Indian startup ecosystem is the third-largest globally in terms of the tech startup volume, following the United States and China. According to the Nasscom report 2019 (9), India has more than 8,900 to 9,300 tech startups, and about 43% are b2b. The total number of startups in India surged seven folds from 7,000 in 2008 to more than 50,000 by 2019.

Indian Tech Startup Ecosystem (1)

Despite the support, startups and investors ask for ease in taxation, and other regulations, including raising capital, angel tax, setting up a business, bureaucracy, and valuation.

According to a LocalCircles survey on budget 2020 recommendations by startups and small businesses (10), only 20% of responses from 58,000 respondents claimed to benefit from it. Other 50% stated that they didn’t see any benefit. 31% believed that raising loans or funding was the top challenge in the past year, while 40% claimed they were facing GST refunds issues.

Read Also: Budget 2021: Top Insights for Still ‘Emerging’ India

Global Innovation Index

Because of the current coronavirus crisis, economies worldwide are showing contraction. However, many are considering the period as an opportunity to launch innovative solutions and products.

The businesses in the Post-COVID era will undoubtedly operate differently, and it gives us huge scope for innovation.

India is already showing recovery, and if it wants to leapfrog, then the country needs to encourage startups and businesses based on new concepts. There is no point in arguments when it comes to intertwining social development, economic growth, and innovation.

The Indian Prime Minister, Narendra Modi, has stated that India needs to be self-reliant if it wants to progress in the Post-COVID era. And it would be based on five pillars; Economy, System, Infrastructure, Demography, and Demand (11).

Here, the million-dollar question is whether we are doing enough to promote and sustain innovation in the country? How far have we come on the path?

Recently, the Cornell School of Business announced the GII-2020, Global Innovation Index for 2020, in collaboration with INSEAD, and WIPO, World International Patent Organization. It gives an annual innovation ranking of a total of 131 countries (12). India had ranked 48 from 81 in 2015. Undoubtedly, the credit goes to several measures taken by the current government.

GII ranking

GII ranking indicates the innovation capability of a country. The pillar leaders often balance different sections of their innovation system, such as knowledge creation, the impact of innovation, exploration, and application.

It gives us valuable insights into any countries innovation strategy based on several innovation indications. India has a high ranking in some of the pillars whereas low on others. For instance, India’s research output has a high substantially with 3rd rank in research publications.

HEI Initiatives

Higher Education Institutes, or HEIs, provide skilled human resources to industry and society. At the same time, they can also significantly impact innovation boost, incubation, and entrepreneurial culture.

If Indian needs to improve its GII rankings and become a global innovation hub, it needs a suitable and sustainable ecosystem that can also convert research into innovation.

It will inspire and nourish young students via exposing them to new ideas and processes, consequently, more innovative activities. Moreover, campus innovation can also boost entrepreneurship and startups, leading to the further creation of new jobs.

Students can design and decide on regional innovation strategies and identify thrust areas. Educational institutes should synergize generating collective innovation assets via facilitating IPR creation, collaboration, interdisciplinary engagements, incubation, and new jobs. All of these make HEIs a part of an innovation system.

With the support of MSInS, Maharashtra State Innovation Society, the University of Mumbai has started a not-for-profit startup incubator (13) called ‘MU-IDEAS Foundation.’ Their objective is to establish a startup culture that encourages innovative ideas and transfer them into viable businesses.

It also promotes startups and supports them during the pre-incubation phase, incorporation, and operational phase. It would enable creating successful businesses via mentoring, advising, and making the University facilities available.

Other Government Initiatives

In India, the present Central Government has taken many initiatives in the past several years to push the country on innovation and build a conducive ecosystem. Some of these initiatives include Startup India, AGNII, Accelerating Growth of New India’s Innovations, Smart City Mission, ASPIRE scheme, Uchchatar Avishkaar Yojana, Make In India, AIC, Atal Incubation Centre, AIM, Atal Innovation Mission, and Atma Nirbhar Bharat.

Another scheme of the Modi government worth special mention is a scheme for women entrepreneurs (WEP). It also gives financial support for innovation to commercialization and extends various financial grants to the industry.

All these efforts should soon lead India into becoming the innovation and knowledge hub worldwide.

Another initiative of the central government is the New Education Policy 2020. It is a path-breaking policy that offers some radical changes and a pivotal concentration on optimizing the resources, academic flexibility, critical thinking, experimental learning, integrated pedagogy, interactive classroom, interdisciplinary approach, and outcome-based student-centric education suitable for the 21st century.

Read Also: NEP 2020: How will it impact students?

The new education policy has the potential to spur innovation, applied learning, and entrepreneurial culture in the HEIs. The Indian government is now framing its STIP 2020, Science, Technology, and Innovation Policy (14).

The Indian Ministry of Education has launched a unique annual ranking program, ARIIA, Atal Ranking of Institutions on Innovation Achievements, considering India’s potential and need to innovate in 2018. It systematically ranks all higher Indian education institutes based on their innovative achievements and on-campus startup ecosystems.

It focuses on innovation quality and attempts to measure the real impact of innovations. There are expectations that ARIIA ranking would inspire HEIs to reorient their mindset and restructure their programs. Apart from that, it would also boost them to create ecosystems to encourage high-quality research, innovation, and entrepreneurship.

The Ground Reality

While there are several projects and policies such as Startup India and Digital India, there are promises which exist only on paper.

As part of the Startup India Scheme, the PM has announced an FoF, 10,000 crore INR funds, and the entire amount would be dispursed by March 31, 2025 (15). On March 31, 2020, the government also committed 3,798 crore INR; however, the amount disbursed has only reached about 1,050 crores, about 10% of the entire FoF.

What India lacks is the solutions for timely executions. According to Mohandas Pai (16), the IMB, the Inter-Ministerial Board of the DPIIT, is a roadblock and a major reason behind the slow execution.

Moreover, IMB’s approval is also necessary to claim income tax benefits under Section 80-IAC. According to reports, more than 5,000 startups had applied for IT exemption between March 1, 2016, to March 31, 2019. However, so far, only 94 startups have received approval for tax exemption.

When it comes to Digital India, implemented in phases between 2014 to 2018, there is also a lack of personal data protection commitment. When it was first initiated, there were no mentions of digital privacy. It only came after the Indian apex court orders that privacy is the fundamental right under Constitution’s Article 21.

India also needs a calibrated industry policy to support its ecommerce sector. The PM fulfilled the immediate demands by allowing 100% FDI in the marketplace in 2016 and adding ecommerce exports to the export subsidy regime as part of the Foreign Trade Policy 2015-2020. However, it is still facing several challenges such as data theft, consumer rights, IP rights, taxation, and disruptive future techs such as drone deliveries and more.

The government is also struggling to clarify intermediary liability issues, data ownership, and source code sharing. There is no clarity on how the government would ensure fair competition since the ecommerce market in India is a two-player market largely and mostly unfavorable for small players who have no deep pockets like Amazon and Flipkart.

The pharmacy sector is also facing several issues because of the absence of a comprehensive policy. The Indian government did come up with draft rules for e-pharmacy in 2018. Still, it is yet to form a pan-India regulation and bring transparency in the sector even though it focuses on easy access to quality and affordable healthcare.

With Tesla’s official launch in India, how can we forget to discuss the policies in the EV sector.

Read Also: It’s Official: Tesla and the dreams of Elon Musk finally touch Indian soil.

In 2018, the government had promised to roll out a stable EV policy that would cover all aspects of EVs. According to an independent study by CEEW-CEF, India needs at least 180 billion USD to hit the 2030 EV target. While the NITI Aayog came up with a policy framework, a national policy on EVs never saw the day’s light.

However, several surveys indicate that India requires appropriate policy measures to lower the overall lifetime EV ownership costs and make them an attractive alternative to all consumers (17).

The government has managed to take a few giant leaps in the drone sector, unlike ecommerce and EVs. The Drone Regulations 1.0 Policy (18) was supposed to build a single solution for all drone-related purposes such as registration and licensing. However, the reality is quite different.

India still requires more than half a dozen approvals from authorities for flying a drone. Notably, India still has its ‘Digital Sky’ in the beta phase with no NPNT, ‘no permission, no take-off in function.’ It is the major cause behind several drone startups forced to put their operations on hold as they wait for a fully-fledged ‘Digital Sky.’

In the End

Unlike the previous government, the Modi Sarkar government is riding on the wave of technological evolution and large-scale internet penetration. The current government has launched UPI, United Payment Interface, an inclusive and overarching digital payment system, and the JAM Trinity (Jan Dhan Yojana, Aadhar, and phone number), which in turn, gave an efficient distribution of subsidies among the poor of the nation.

India also witnessed a transformational shift in fintech, edtech, TeleTech, Saas, D2C commerce, and several other sectors.

However, these positive outcomes are still at odds with the ground reality. It seems like the government is struggling to bring in the necessary policy reforms across sectors in tune with PM Modi’s 2014 and 2019 election manifestos.

While some can blame it on the ongoing coronavirus pandemic, but it alone cannot cover the policy paralysis on the ground. We expect normalcy with the vaccines coming up, and simply announcing a series of ambitious reforms is not sufficient.

The time has come for the Modi government to walk the talk at a rapid pace. Meanwhile, they also need to leverage the young nation’s demographic advantage, merge their efforts, and create a true Atmanirbhar, self-reliant India.