Come 16 January 2016, PM Modi will unveil the objective and policy framework of his latest initiative ‘Start-up India, Stand-up India’, which is aimed at promoting innovation as a means to promote entrepreneurship that will lead to job creation.
PM Modi first spoke of his idea during the Independence Day speech at Red Fort earlier this year and mandated the Department of Industrial Policy and Promotion (DIPP) to begin dialogue with various stakeholders and prepare the policy framework to drive the initiative.
In his last address to the nation on ‘Mann ki Baat’, his Radio talk show, Modi re-iterated his government’s intention to give impetus to the innovative and creative spirit amongst young India and build a government supported eco-system to harness this potential.
The Start-up India, Stand-up India Government Plan
As per the latest NASSCOM Start-up Report 2015, start-ups created 65,000 new jobs in 2014 and by 2020, the number is expected to touch 2,50,000. That’s an ambitious plan and as of now, driven almost entirely by private sector initiative. If PM Modi succeeds in establishing a pro-active start-up eco-system as intentioned, then the potential for new job creation will be far greater than NASSCOM’s projections.
The international business community accepts India as one of the most attractive destinations for investments and of late, has discovered India’s potential for innovation and creativity. The last three years has seen significant scale up in international investments in start-ups and this has led to skyrocketing valuations, exceeding $ 1 billion in some cases, a phenomena that would have been unbelievable just five years ago. And this has been achieved with little or no support from the government.
PM Modi rightly recognizes this fact and understands that this is the right time to bring in the government to define a conducive policy framework, backed by necessary financial and tax incentives, and nurture the creative and innovative potential of the youth. He also sees the downstream benefits of job creation in smaller towns and villages.
Towards this, the government plans to form a secretary level inter-ministerial panel comprising representatives from various ministries like biotechnology, science & technology, information technology etc, which will work in coordination with DIPP to evaluate proposals based on innovation and commercial potential.
Furthermore, the government plans to connect the youth, through IT access, with knowledge base and mentorship available from academic institutional network including IITs, IIMs, NITs and leading central universities, who will extend help to these potential entrepreneurs across India.
The panel will act as a guide to ensure that the potential entrepreneur is able to set-up his business without too much red tape and is able to access finance on easy terms to launch his business.
Potential spoilers to Start-up India; Stand-up India
As with any central government initiative, the success of a programme lies in its ability to percolate its benefits to the intended beneficiaries. In this case, the government will have to address all issues not just at the policy level, but ensure its implementation at the grassroots i.e. the Tier II, Tier III towns and subsequently at the village level.
The Problem Areas:
- The absence of specific start-up laws and lack of exit options.
- Tough compliance laws that were framed keeping in mind traditional businesses have to be done away with in the case of start-ups and new laws have to be framed keeping in mind new-age businesses and its rapidly evolving technology.
- Start-up funding is based on risk taking and ability to understand the application and commercial potential of the proposed business. Lack of dedicated start-up capital funding without guarantors or collateral is a major hurdle today. Furthermore, the lack of risk taking ability by public sector banks is mainly on account of restrictions based on current laws. These need to be changed and banks given the freedom to fund a proposal once it has been approved by an expert panel, either within the bank or by a competent and approved outside agency.
- Most start-ups fail either due to lack of market acceptance, market entry timing, lack of suitable mentoring, or simply lack of adequate funding. Whatever the case, the ratio of failures compared to success is skewed. Almost all successful entrepreneurs have tasted several failures before hitting a jackpot. Therefore, the government must factor in failure and ensure that an entrepreneur is not penalized for failing, but is encouraged to try again.
- Once a proposal is vetted and approved, easy funding on favourable terms must be made available based on the capital required to initiate the business and expand as per projections.
- Lack of government-sponsored physical incubators with the latest technology backbone is important for an ecosystem to develop. This along with mentors and subject matter experts that can assist first time entrepreneurs to handle the required paper work for establishing the business and guide the business to the next level of funding is essential.
- Lack of government experience at the Centre and state level in supporting tech-based entrepreneurs is yet another problem. The government needs to bring state governments on board to ensure that bureaucrats are trained to extend full support to young entrepreneurs and ensure they contribute to growing their business rather than act as a hindrance.
- A lot of talent exists in smaller towns and villages for basic need based innovation, as well as social innovation. At present, there is a complete lack of eco-system outside the larger metros, therefore, if Start-up India; Stand-up India has to succeed, it is important for the government to extend this new initiative at the grassroots level. And this will be no easy task as many government officials at the district and block levels still don’t know how to use the computer, let alone advise anyone on innovative entrepreneurship.
- The government has to identify officials at the Centre and state level, in coordination with state governments, and initiate an extensive and ongoing training program that will prepare these officials to be entrepreneur friendly and actually develop the skills required to provide support, as needed.
Awaiting the January 16 announcement
PM Modi’s announcement of Start-up India; Stand-up India is likely to address most of these concerns and it remains to be seen how the government transitions its own bureaucracy towards making this vital initiative a success. It’s time to get India started.
Credit Guarantee Fund in place
Finance Minister Arun Jaitley launched the Credit Guarantee Fund on 6 January 2016. The scheme, which has been launched under the Stand Up India, has been designed to address the needs of the SC/ST categories along with women entrepreneurs. Loans and credit guarantee protection will be offered to at least two entrepreneurs under the scheme by every branch of each bank. For SC/ST and women entrepreneurs, loan facilities between Rs 10 lakh and up to Rs 1 crore will be made available for non-farm greenfield ventures. The maximum period for loan repayment will be seven years.
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