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Recommendations for a healthy start-up ecosystem in India

The IT sector is known for giving the economy the boost that it needed and kickstarting the development path - partly owing to the fact that taxes started to collect.

Vijay Anand        Last Updated: July 1, 2014  | 15:20 IST
Recommendations for a healthy start-up ecosystem in India
There are roughly about 1,000 - 1,500 technology startups emerging in the country every year.

Vijay Anand
The Year is 2014. There are supposedly close to three million SMEs in the country. I use the word supposedly because, it's an estimate. There hasn't been an effort to find out who these SMEs are, the challenges they face, and the infrastructure limitations that they carry. Most of them are also brick and mortar companies that depend on the growth of the country to scale up operations.

IDENTIFY:

The first step to unlocking entrepreneurship in this country would be to identify these companies. Most of them like to stay under the radar, because they are small manufacturing units, supply and distribution networks and the likes. But a necessity to creating domestic need without going directly to the consumers, is also to identify the cogs in the wheel and being able to address them.

EMBRACE the Knowledge Economy:

There are roughly about 1,000 - 1,500 technology startups emerging in the country every year. Roughly about 150-300 of them will find their place in the ecosystem, and validate their models to survive. These are rather fractional numbers compared to the million unit SMEs out there, but these are also powerhouses, that can employ people at scale (Flipkart plans to hire 15,000 people this year). The legislation and law that applies to the manufacturing unit and a technology startup, cannot be the same.

LOWER Compliance costs:

The IT sector is known for giving the economy the boost that it needed and kickstarting the development path - partly owing to the fact that taxes started to collect. Processes, unlike in traditional firms, are set and TDS/Sales/Service taxes are duly collected and paid. That said, increasingly - especially with the new companies ACT - startups are under the burden to comply. More than the effort, it is also the time that goes into filing of various returns, the refilings that need to be done if there is a delay, the penalties attached with it, and the refiling of the penalties - if it sounds tedious in words, it is because, it is so in reality. Countries like Singapore have found it advantageous to give young startups a tax break up to 3Mn$ of revenue - while it might not have to be to that extent in India, loosening up compliances, would make the difference between survival and shutting down for a lot of startups.

Regulate CROWDFUNDING:

There is suddenly a focus with the government, with SEBI regulating how crowdfunding should be and a proposal that only accredited investors should be able to contribute. The biggest advantage with crowdfunding has been that it de-risks investors, and enables the companies to gain early customers and adopters. It would be unfair, given how most companies will never raise capital, to stand in the way of gaining customers. It is understandable that crowdfunding against equity is a complicated matter and resembles an IPO, but it would be my recommendation that the government not restrict Crowdfunding channels yet, given that they are still emerging as a trend, with not enough data to drive concrete pathways (policies) from.

Remove ANGEL TAX:

There is a dearth for start-up capital in the country. Even though angels to make investments, the demand for capital far supersedes the liquidity. Angels also come with experience that takes away the need to find mentors, with alternate funding options like a bank loan. Give angels a tax break for investing in companies less than 3 years old. If and when they make money, the wealth tax would still make up for it in the long run.

Open the borders:

We are a nation that for centuries has been the amalgamation of great ideas. We gave birth to a civilization, and we continue to stand. India is a phenomenal market, and a puzzle that intrigues many minds from across the world, yet entrepreneurs find it very hard to be able to come in and setup businesses, and try to make a difference. The key for this nation, in leapfrogging into the future, is in making the future of this nation a participatory one; beyond just citizens of this country.

Vijay Anand is Founder and CEO, The Startup Centre.

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