Instead of providing an enabling business environment, the government is applying a version of the infant industry logic. Has start up India and stand up India failed to uphold their objectives? Critically comment.
Government launched the Start-up India, Stand-up India campaign along with slew of measures like simplifying regulations, offering some handholding, a few tax breaks, and a fund-of-funds—to rev up the start-up engine and enable entrepreneurship, technological progress and innovation.
However, a very little progress is made on it. This is mainly because of some inherent flaw in the design of the programme and negligence of practical aspects. The major lacunas in current design are
The government has so complicated access to the programme that start-ups haven’t been able to get close. Government received only about 1,368 applications; of these, only 502 were recognized as start-ups by the department of industrial policy and promotion. And an even smaller subset—just the 111 firms incorporated after April 1, 2016—were considered for tax benefits. Finally, the benefits were granted to only eight start-ups.
From start-up fund of 10000 crore under SIDBI, though bank has sanctioned some amount but this amount hasn’t been withdrawn. This is because the bank only puts in 15% of the total corpus, while it is the VC that has to bring the remaining 85% to the table. And, this year, VCs have struggled to raise that kind of money—as a result, funding has almost halved.
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 so the scheme had to be restructured to loosen the restrictions. Under the new rules, VCs will only have to invest half the corpus in start-ups while the other half can go to relatively mature firms.
Another reason for the poor response from VCs was the government’s requirement that participating investors had to be registered with the Securities and Exchange Board of India. But some of the biggest VCs aren’t, and the government has essentially shut them out.
Initially tax holiday was allowed only for first three year, but only few start up could become profitable in first three year so this tax soap remain ineffective to attract the new entrepreneurs. Now tax holiday extended to five year.
Thus government need to provide enabling environment to start up for their growth rather than applying a version of the infant industry logic. The government too is interfering with the market mechanisms necessary for steering the growth of start-ups. Excessively high valuations and irrational