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Government and Startups: Past and future

If buying milk becomes expensive, then it is better to invest in a cow.

This just summarized the current global scenario. With the slowing down world economy, global trade wars, inflationary pressures, and potential recession threats, the future development and favourable employment trends of the majority of countries are at stake. This rings an alarm for building self-sufficiency in our own nations and suggests that we can’t afford to be dependable on any major power for employment or resource generation anymore. This similar thought enthusiastically convinced the Indian government to support and invest aggressively in the young budding startups.

From the Indian perspective what came to be known as ‘StartUp India ‘or ‘StandUp India’ initiative promoted huge crates of investments in entrepreneurship in collaboration with certain banks who are now rolling out low-interest business loans with zero or minimal collateral requirements. In terms of education and training for entrepreneurship where India ranks last, the government coordinated with few portals, companies, and institutions to ensure easy access to unofficial training networks, which drastically increased over the three year period. The initiative provided better reach to research parks, incubators, and startup centres among others.

With such a set of initiatives, the government ensured greater resource availability. This actually helped! A total of 18, 861 startups have come under-recognition since the launch of the Startup India Initiative in 2016 with the present average frequency to be more than 1 startup being registered per hour. This rise in startups came up with an overwhelming rise in employment, providing jobs to about 5.6 lakh people. The major challenge resolved by the government in the process was the lack of monetary assistance or funding.

The government created a ‘Fund of Funds’ with support of the Small Industries Development Bank of India (SIDBI) who committed Rs. 2,570 crores to 45 Venture funds catalyzing investments of more than Rs 25,000 crores. The government budget allocated 20,000 crores to set up a specialized bank for the SME sector, called as Mudra Bank, earmarking 10,000 crores for support to startups.

The second set of initiatives taken up by the government in India improved the ease of doing business. Under this, greater focus was given onto easy licensing and approvals as well as tax benefits were provided to startups. This reduced friction and transformed the perception of startups in the minds of struggling entrepreneurs. It came in the form of ‘Angel Tax’. The government eased rules for ensuring relief to start-ups facing tax demands for selling shares at a premium to their fair market value.

Simultaneously, it even expanded the eligibility of companies who can avail this benefit. The move was aimed at encouraging wealthy individuals to invest in start-ups. They even replaced the multiple layer permission pyramid with a smooth mechanism and a major chunk of startups were also granted rebates in patent filing or trademark filing fees. Hundreds of patents were granted. With this enormous support of government policies and easing of the legal procedures, startups saw a new morning.

The third set of initiatives undertook by the government successfully steered a passion of entrepreneurship in youngsters and promoted innovation to sieve out entrepreneurs for tomorrow. ‘Make in India’ promoted the inception of Indian startups as the scheme would now guarantee a supporting manufacturing infrastructure and economies of scale in the nation. This marked India as an emerging market and hence, a business opportunity for idea-generating heads and businessmen to invest in their new ventures.

‘Atal Innovation Mission’ was another initiative which encouraged the youngsters to develop a passion for starting something new when the government will fully support the innovation. This was started with the hope of bringing up some appreciable innovative business models on the globe. The government initiatives are even balancing the skewness in the kind of startup models that are usually seen in India where support to the rural groups is nurturing business models that are aimed at rural development.

Hence, with India’s dual strategy, some startups to competing at a global level to increase GDP while some of them are ensuring the internal rural development of the country. Even entrepreneurial summits organized by the government are providing startups with international exposure and competitive advantage, which presents another boosting incentive. In fact, if the government stops supporting and investing in startups anywhere in the world, the major IT cities will lose their grace, and the startup industry will face an abrupt halt.

But despite all the support and pampering by the government, there is still a long way to go. And Covid-19 has made it even a tougher road to map. With limited and vanishing funds and existing vulnerability to the global atrocities such as liberalization and globalization, the future for the startup ecosystem is hazy.

Adding to this heap of challenges is the recent event which is prompting India to boycott China whereas a matter of fact, China is a major investor in all our big startups like Oyo, BigBasket, Flipkart, Hike, MakeMyTrip etc. If this continues, startups will be in bigger trouble. The government needs to come to their rescue or the dream of attaining self-sufficiency will just remain a dream.

But at this point, it is not wrong to conclude that with stress-free access to education, training, funding, loans and government support with the increasing ease of doing business and tax benefits, the aspirations of Indian startups will take a high rocket flight.

Just, Beware of the meteors!

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