Last week, Prime Minister Narendra Modi launched the Startup India Action Plan. This focus on startups is important in many different ways – as an alternative to big corporate India’s lack of investments into the economy, as a way of catalysing entrepreneurship to create jobs, and as a way of tapping the demographic dividend of India as a competitive advantage in the global economy.
With more than 4,100 technology startups (and countless other non-tech startups), India is home to the third largest number of such ventures in the world. The prime minister’s action plan lays out detailed steps that make it easier for startups to setup and sustain – from defining a startup to providing a 80% rebate on the filing of patents.
Now with the tax exemptions, credit incentives, discounts on patent filing and a dozen more benefits, the Startup India initiative will, without a doubt, be a boost to the existing startups. Funding to the tune of $9 billion was pumped into Indian tech startups in 2015 – an amount equal to the total funding received by startups between 2010 and 2014. The self-certification and funding support system, in particular, will help increase the number of tech entrepreneurs and innovators in setting up new ventures.
Focus needed
As someone who started his entrepreneurial career in one of the first cellular startups in India, I can endorse the need for this focus on startups.
In India, startups have traditionally had two significant barriers or obstacles. The first set of hurdles comprises apathy, corruption, government red-tape and its policies to those without “connections”. Then there is the destructive power of big corporates in India which, through their political power and influence, can stop dead a startup if it attempts to compete with them.
I have experienced both problems first hand and so I can testify to their power to disrupt the best ventures. It is these obstacles that make most startups focus on the tech sector because of minimal government and corporate influence in that space. But it is necessary for our policymakers to address these issues with deeper structural reforms that will broaden the Startup India appeal to non-tech sectors.
These structural reforms and policies go beyond the current action plan, tax incentives and removing red tape. It must go into issues that deal with policymaking that is fair and equitable (and not biased in favour of any big corporate), regulatory reforms (that allow regulators to intervene if big corporates try and muscle in on startups), banking and capital market reforms (that allow capital access to all and not just a few connected or big corporates, as is the case now), and reforms like the Goods and Services Tax (that make it easier for small start-ups to operate across the country), and a marketplace that allows for free and fair competition.
These reforms are not particularly unique to startups; they also impact the small and medium businesses that already operate but are particularly "life-supportish" for startups that need every encouragement to be successful.
Let us look at one example of how government policymaking is key for startups. In the digital and tech space, in addition to a conducive startup environment, tax incentives and funding, tech entrepreneurs’ critical requirement includes affordable access to the Internet for themselves and for their clients. The current debate on net neutrality and the future of the Internet in India has a direct bearing on this matter and on tech startups.
Last month, nine prominent startups made it unequivocally clear to the Telecom Regulatory Authority of India – the country’s internet regulator – that they were squarely against any attempt of telecom companies to cabalize the internet. In an open letter, they stated:
“The open nature of the Internet has spurred innovation and enabled startups to flourish. The success of Google, Facebook or of several Indian startups, including those founded by the below signatories to this letter, is a result of the open nature of the Internet that permitted innovation without any entry barriers.”
I could not have put it better myself.
Role of the Internet
With over 300 million internet users and an expected 200 million more by 2017, the role of the Internet and free and fair competition online is essential for the growth of tech startups to access this vast consumer base. The operative words here are “access” and “fair competition”.
The Internet is increasingly transforming from being a connectivity medium to a valuable marketplace. Predictably, telecom companies that control access to the Internet will try and creep in and acquire control on parts of the Internet to gain part of that value. But in contrast, a startup needs unfettered access to the Internet, without telecom companies controlling and gatekeeping access to sections of the Internet in an anti-competitive manner. If government policy permitted this to happen, it would in a sense negate all the pluses accruing from the Startup India Action Plan.
This is because startups would have to pay the telecom companies an “access fee” or get into some commercial arrangement, whereby they pay the telecom company to get “preferential access” to their web content over others. This goes back to the threat I mentioned of having big corporates determine the fate of startups. If allowed to gate-keep and cabalise the Internet, telecom companies would be playing god in determining success or failure of startups.
As it stands, telecom companies remain the biggest threat to net neutrality, and therefore, startups. The irony, however, is that these technological developments actually provide a huge opportunity for telecom companies to boost their own revenues. The Internet of Things, an emerging area that startups are sure to veer towards, for instance, offers avenues for telecom operators and system integrators to significantly increase their earnings. This, in fact, has resulted in them taking the lead in offering IoT-based services.
As someone who has spent more than a little time in this sector, disruption is the new normal in technology. By trying to resist, telecom companies are only defying the laws of gravity of the technology sector and trying to duck innovation and change.
On Thursday, the Telecom Regulatory Authority of India held an “Open House Discussion” on its Differential Pricing Consultation Paper. One point which I have repeatedly stated time and again is that telecom companies should not be allowed to play the role of gatekeepers for the Internet. To do so would create a non-conducive startup environment for tech entrepreneurs.
It is now up to the government to ensure that net neutrality principles are upheld and that the Internet remains a free, open marketplace for consumers, and for the thriving startup community that it seeks to support.
So it’s obvious that to make Startup India successful, the government also needs to focus on creating a policy and regulatory environment that allows them to function freely and fairly. In this case, perhaps even a specific legislation for net neutrality may be in order.
Fulfilling potential
The other broader challenge is the ability of government departments and bureaucrats to deal with young, bright entrepreneurs. This leads to another issue of creating capacity and capability within government to deal with new ideas, businesses and technologies – which it is obvious that the government is woefully underprepared and undermanned for – to even the kindest supporter of our bureaucracy.
The government’s policy, too, acknowledges the strong interdependence that startups have with technology. Last July, when the Digital India programme was unveiled, Prime Minister Modi spoke at length about the need for it to focus on innovation. The prime minister assured full support to young entrepreneurs who wished to launch startups. I am fully convinced about and supportive of our prime minister’s desire to unleash the potential of young India onto the world and into our economy.
The government’s Startup India action plan is a good beginning in this respect. But a lot more still needs to be done to make the endeavour full and complete. It needs to focus on other policy and regulatory actions that are required to make Startup India a true, deep revolution for the youth in India and for a real boost to our economy and our global standing.
Rajeev Chandrasekhar is a Member of Parliament and technology entrepreneur.
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