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Startup Corner | Will Startup India get a fresh lease of life under Modi 2.0?

The signature scheme is plagued by many bottlenecks. The government in its new avatar must summon courage to tackle the trouble spots

May 30, 2019 / 01:20 PM IST


It started off with much fanfare and is billed as one of the flagship programmes of Narendra Modi’s first stint as the Prime Minister.

But that was then. Years down the line, Startup India is now a poor shadow of its former self, way short of expectations as much of the promised funds are yet to come by.

With Modi taking over the reins one more time on May 30, will Startup India get going finally? Let's  first look at what held back the scheme.

The signature scheme leaned heavily on Rs 10,000 crore funds support, along with incentives to the tune of Rs 1,000 crore, to boost high technology startups. Also, new incubators, accelerators and 100 more innovation zones by 2024 were part of the blueprint.

The initial euphoria faded quickly. In fact, some of the key aspects of the 19-point agenda never saw the light of day. To make matters worse, only close to 10 percent of the promised funds have been released so far.


To be sure, Startup India took off with best of intentions, but floundered because of implementation inefficiency. According to a survey in December 2017, nearly 80 percent of startups did not benefit from the programme.

Some say the biggest challenges still are delay in sanctions, corruption (according to a survey by LocalCircles) and the all-pervasive paperwork. While one of the major objectives was to offer tax benefits to new-age companies, less than 100 of them managed to secure it during the first year of the launch.

It was towards the end of Modi’s tenure, startups started facing challenges, with the angel tax acting as a major dampener. To give the credit where it’s due, the election-bound Modi government then dealt with the issue tactfully and granted angel tax exemption to more than 500 startups.

The story is far from complete. The angel tax issue is yet to be resolved fully, given a few undefined areas. Resolving this issue may be treated by the Modi government as a priority in the coming months.

There are other pain points as well. Digital India, which came along with Startup India, promised delivery of government services to citizens by improving online infrastructure. It did get some traction, but the concept was more than connecting the unconnected. The bigger objective was to ensure India leaps onto the advanced technology highway. That is still work in progress.

The major peeve of home-grown startups is the paperwork, which is seen as a big roadblock in the age of the internet, especially when the government is shouting from the rooftops about the success of Digital India. Reducing the paperwork could make the process smoother.

After the initial phases of Startup India, even fund flows slowed, especially at the seed stage. The inflow of seed capital or angel investments dropped by more than 20 percent during January-September 2018 compared with that of the same period a year ago.

After Modi’s jaw-dropping electoral mandate, India’s startup community is a hopeful lot. Their expectation is that issues holding back growth of startups should be resolved sooner than later.

Modi 2.0 would do well to look beyond metros cities. There are many small-scale startups in rural India that are working on real problems by using technology. According to available data, startups in smaller cities raised nearly $447.66 million in 2018, a three-fold jump from 2017. It’s time Startup India becomes Startup Bharat.

Founders of local startups have given their verdict, too. They expect the government to lay down simpler and clearer guidelines, particularly in tier-II and tier-III cities, which would help startups get back in shape. More so because lack of funding remains a major irritant. This is one area that Startup India can tackle urgently at the seed stage by widening reach.

Another key demand is to create a Bharat Inclusion Fund with a focus on resolving the issues startups face in smaller cities.

Setting up common infrastructure at the district level, which can easily be accessed by startups as incubation centres, can go a long way in realising the potential. These centres may also be used for sharing resources.

In five years, the Modi government will be judged again on its track record of encouraging startups in India. If it learns from the first tenure, then the second tenure could be a more fruitful one, both for the startup community and their employees.
Sounak Mitra is an Associate Editor, Moneycontrol. He has been writing on corporate issues and policy for more than 15 years, having previously worked with Mint, Business Standard, Mergermarket, The Telegraph and The Times of India.

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