“Start-up India is just a website...”

Start-up India, at a glance...

January, 2016, Started

20,000+ Total start-ups in the country

4,536 Registered with Start-up India

Rs 10,000 crore funds

Rs 600 crore committed, as of October 2017

Rs 5.66 crore, offtake till January 2017

74 tax benefits afforded

75 being funded by Start-up India

What’s a start-up: an entity which is less than seven years old and has an annual turnover of less than Rs 25 Crore

Start-ups profiled for this story:

• Road Bounce: Helping authorities track potholes

• We Create Problems: A firm creating assessment questions

• Dairy-Free Ice Cream (registered)

• Cleansta: Waterless soap and shampoo (registered)

• News Global Live: A news tech company

Road Blocks:

• Only Private Ltd. Companies eligible

• Payment of MAT ( Minimum Alternative Tax) mandatory

• Venture capital needs approval from SEBI first

• Not enough focus on social sector start-ups

• Lack of adequate mentoring and guidance

Start-up India, a flagship initiative of the Narendra Modi government, is failing to live up to its hype. Announced on August 15, 2015, during his second Independence Day speech from Red Fort, the ambitious scheme came into effect in January the following year.

An year into Start-up India, gaps are already starting to show between what the Prime Minister had actually promised and what is being delivered. “Start-up India is a wonderful initiative in what they intend do. But they could do much better when it comes to implementing it,” sad Anant, a 23-year-old entrepreneur and COO of We Create Problems (WeCP), a firm that creates assessment questions.

An engineering graduate from National Institute of Technology in Trichy, Anant had been provided incubation support for his budding firm by Nexus, an initiative out of University of Texas. “I did check the Start-up India website, but concluded that the whole process of registering a start-up and trying to get mentoring support would be too cumbersome,” he said.

Several entrepreneurs and analysts who National Herald on Sunday spoke to pointed towards flaws in the new start-up policy that was keeping Start-Up India from taking off.

According to India’s new start-up policy formed under the Modi government, an entity which is less than seven years old and has an annual turnover of less than `25 crore falls under the category, as defined by the Department of Industrial Policy and Promotion (DIPP).

However, several entrepreneurs and analysts say that the definition of a start-up is too “restrictive”.

“Ours is not a registered start-up under Start Up India, since you have to be a Private Limited Company in order to have your company’s name registered,” said Ranjit Deshmukh, the founder of Road Bounce, a start-up helping authorities track potholes on roads.

A partnership, or Limited Liability company, is not recognised by Start-Up India. “It has to be a private limited company with a Board of Directors and the company must float shares,” another entrepreneur, who didn’t wish to be identified, said.

The government has also exempted start-ups from paying any income tax for three years in a five-year block. However, the tax exemption comes with a caveat. The start-ups still have to pay a Minimum Alternative Tax (MAT) of 18.5 per cent. Analysts reckon that paying of MAT is a big loophole in promoting a start-up ecosystem in the country.

Besides, a report on status of Start-up India released in October 2017 showed that only 74 start-ups had been afforded tax benefits under the new scheme.

“The MAT is yet another disincentive for start-ups in India. There is hardly any profit made in the first three to five years,” pointed out Sonal, the founder of White Cub Dairy-Free ice cream. Sonal described her experience with Start-up India as not particularly pleasant, saying that she didn’t receive any positive feedback from the government, prompting her to look for funds elsewhere.

The government’s failure to effectively tap into the Rs 10,000 crore “Fund of Funds” established to promote start-ups in the country is another worry. As of February 2017, the government revealed in response to an RTI application that only Rs 5.66 crore could be disbursed out of the allotted sum.

But Sanjay Sharma, who mentors entrepreneurs in pitching their companies to investors, noted that the Start-up India report released in October 2017 said that the government had just been able to commit Rs 600 crore, out of the allotted Rs 10,000 crore, to the start-up sector. “But the fact that the money has to be routed through the Small Industries Development Bank of India (SIDBI) has made the process more complex,” Sharma said.

He recalled several of his clients complaining about how tedious the process of getting funding approved through SIDBI was.

A Company Secretary (CS), who has been associated with several start-ups, claimed that fewer than a hundred companies, out of 1,333 registered as start-ups, have so far benefited from the funding provisions under Start-up India. “There is a clear disconnect between the government’s start-up policy and entrepreneurs wishing to avail benefits under the funding provision of Start-up India,” he said.

The CS, who didn’t wish to be named, explained the complex funding process under Start up India, which leaves out Venture Capitalist investors not approved by the Securities and Exchange Board of India (SEBI). “If approved for funding under Start-up India, 85 per cent of the funds would be sourced from SEBI-approved venture capitalists, the remaining coming from the government.”

“The whole process, after getting registered, takes two-three months since things have to get approved by an inter-ministerial committee, which sits once every 2-3 months,” he said.

“Most of the venture capitalists only help start-ups during the second-stage funding. The start-ups are very much on their own during the initial stages, when they need the most support.”

Involving venture capitalists in the funding process is proving detrimental to promoting social sector start-ups in the country, maintain some observers.

“They are seasoned finance professionals who carefully consider the profit-making potential of a start-up before approving the application. If someone has an idea that could help farmers in rural parts of the country, he might not make the cut in getting the funding,” the CS pointed out.

Rohit Gandhi, a former editor at Zee, and now a co-founder at News Global Live, said India will continue losing its start-ups to other countries unless government rules are streamlined.

“When we went out as a start-up in registering and getting our work done, it was really mindless. It took us many months to get our company even registered. We had multiple rejections based on the date,” Gandhi said. “At this stage, Start-up India is just a website,” he said.

Entrepreneurs further complained about the lack of mentoring under the Start-up India programme.

“The biggest drawback of Start-up India is that it lacks mentoring spirit, as seen in similar programmes elsewhere in the world. Giving tax benefits is fine but first help build start-ups,” Anant from WeCP said.

A ray of hope

Despite the hiccups being experienced by Start-up India, Federation of Indian Chambers of Commerce and Industry’s (FICCI) secretary general, Dr A Didar Singh, remains upbeat about the prospects of the programme.

“Start-up India is an excellent programme not just for the benefits it offers but for the signalling it gives for business and start-ups,” said Dr Singh. India was well on its way to become the “Start-up capital” of the world, he added. Singh, however, recognised the importance of “funding” and “mentoring” in nurturing a start-up, adding that FICCI had worked with over 900 new start-ups over the last 11 years.

Thirty-year-old Mohit, a top executive at Cleansta, a waterless shampoo and soap, said that though there were challenges under the Start-up India scheme, he remained a supporter.

“I won’t be a critic at this point as I hope thing would improve. We could do with more mentor-based guidance to start-ups on impromptu basis.

(The story was first carried in National Herald on Sunday)