26/10/2018 5:08 PM IST | Updated 26/10/2018 5:08 PM IST

Government Not Doing Enough For Startups, Says NASSCOM

Narendra Modi has made Startup India a rallying call, but industry insiders say the government needs to put their money where their mouth is.

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Prime Minister Narendra Modi at the launch of Startup India in January 2016.

BENGALURU, Karnataka—Prime Minister Narendra Modi's BJP government has frequently talked about Startup India. But nearly five years after the scheme was announced, industry insiders say that more needs to be done. Noting that the startup ecosystem in other countries (such as China and Japan) receives a lot of support from the government, NASSCOM president Debjani Ghosh said startups have not received much support in India, barring a few exceptions.

"With investors looking for fund growth stage companies, there is a continuous decline in the [higher risk] seed stage funding. This is not a surprise, but the government can help at the seed stage, like China and Japan do," said Ghosh. "Otherwise, it risks killing innovation."

Ghosh was speaking at the sidelines of a press event to release the 2018 edition of NASSCOM's annual Indian Startup Ecosystem report in Bengaluru, where she highlighted the fact that there is a lot of potential in India right now, which will not only lead to successful companies but also large scale job creation—if nurtured properly

"Not just signing a cheque"

The Startup India programme was launched by PM Modi in January 2016 to help deliver funding to new startups, including in sectors that traditional VCs often ignore. The Startup India website includes a list of 30,149 companies, but as of December 2017, only 74 companies had availed tax benefits.

In a written response to a question in the Lok Sabha, from the Fund of Funds of Rs 10,000 crore, the government has disbursed just about Rs 600 crore. One industry insider said that the number of companies that have seen investments so far is just 216.

The Startup India website includes a list of 30,149 companies, but as of December 2017, only 74 companies had availed tax benefits.

Ravi Gururaj, founder and CEO of Qikpod, and an angel investor, feels that this is not fully reflective of the work that the government has done, and said that although it has taken some time for the investment to begin, the work is underway. "It is early days, and will get better next year," he said.

In contrast, Ghosh pointed out that the Chinese government hugely supports local startups, and in Japan there is the Japan External Trade Organisation (JETRO) which works with the government to promote startups.

"The government is definitely doing some things, but the question to be asked is, 'can it do better?'" Ghosh asked. "We need to see more organised development, and capability building, not just capacity. It's not just signing a cheque."

An executive with one of the biggest VC funds in India, whose investments include some of India's most well known unicorns, asked not to be named and said, "A lot of people had thought that the government will open up many opportunities, but on the ground there has been no change. There has been a lot of talk, but what have they actually done?"

40,000 new jobs thanks to startups

Despite these challenges, NASSCOM's report on the state of startups in India is largely positive. According to the report, the startup ecosystem has grown at between 12% and 15%, with 1,200 startups added in just 2018. The total funding raised by startups in 2018 was $4.3 billion (roughly Rs. 31,500 crore), nearly doubling year on year.

These companies are responsible for 40,000 new jobs created, with a total base of 1.6 to 1.7 lakh jobs, and these are direct hires, while according to NASSCOM's report, they also lead to 2.5-3x indirect jobs. It is unclear how NASSCOM has arrived at this multiple.

NASSCOM is defining startups as being at most five years old, from India, currently active, and beyond the idea stage with at least a working prototype or minimum viable product. That last classification is a little more stringent than what Startup India requires, with many of the startups listed on its website still in the Ideation stage.

Ghosh also noted that although China saw 20 unicorns (privately held companies valued at over $1 billion) in 2018, India saw 8. However, she pointed out, "time-to-unicorn" is 5-7 years in India, putting it ahead of the rest of the world, behind only China where it is 4-6 years.

Open up the market

Ghosh said that although the government can do more to fund early stage startups, it can make a much bigger impact by opening up the market for these companies.

"Opening up the market is much more important than funding or space [building startup hubs]," Ghosh said. "The government is a very big customer in India and if it started working with startups it would create a huge opportunity.

"Procurement policies can make a big difference, if the government wanted to," she added.

Beyond that, Ghosh also echoed a view that most in the industry, from Tata Communications, to the government of Andhra Pradesh have voiced—that there is a severe skill gap in India, and it's going to be one of the biggest challenges going forward.

"The government's role can't just be about funds, it needs to build capacity as well," Ghosh said.

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