Starting trouble

Fund allocations under Start-up India falter

Fund allocations made under the government’s Start-up India initiative show that the ambitious scheme is far from being a success. The start-up fund of funds, launched some three years ago by Prime Minister Narendra Modi to help early-stage entrepreneurs, has so far committed Rs 1,900 crore, which is less than 20 per cent of its Rs 10,000-crore corpus to venture capital firms. The estimates, given by the Small Industries Development Bank of India (Sidbi), which manages the fund of funds for the Start-up India plan, are an indication that the government has fallen short on delivering its promise to create a lively ecosystem for entrepreneurs. The government had wanted such an ecosystem to be an engine for job creation, a lack of which has turned into a major challenge for the current dispensation. While business and politics often go hand in hand, schemes such as Start-up India should have had a clear vision and goal, which it has lacked. It’s not just Start-up India; several other government initiatives including Make in India and Swachh Bharat have also not turned into success stories despite their potential.

Although the government did well to set up a fund of funds to be managed by Sidbi so that allocations to start-ups could be routed through venture capital firms, 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. 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. In the US, for instance, the federal government does not usually offer grants for starting or growing a business, but it plays an active role in technology development among other areas. In addition, business grants are available through state or local initiatives there. Also, there are competitive awards-based programmes, encouraging small businesses in the US to pursue R&D projects that can result in opportunities for commercialisation.

 
Despite the gaps in the Start-up India initiative, it’s heartening to find a growing number of unicorns (start-ups reaching a valuation of $1 billion or above) in India. After all, 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. The question is whether these start-ups have grown with active help from the government or despite the government. It’s a fact that funding slowdown is a worry, along with a lack of focus on innovation. Not only that, the recent demands made by the Central Board of Direct Taxes (CBDT) asking start-ups to pay the angel tax based on the valuation of firms have also adversely hit the mood in the sector, though the authorities have since assured promoters of no coercive action till the matter is looked into by an expert committee. Apart from that, the government proposal to stop cashback and deep discount sales by e-commerce firms has added to the overall gloom. Since a large number of new start-ups could get into the e-commerce space, such messaging from the government could act against the spirit of entrepreneurship. The silver lining is that Sidbi is now talking about hastening the process of fund disbursals through new technology enablers under the Start-up India initiative. The time has come to walk the talk.