Monday, January 18, 2016

Start and Go

The government’s new initiative for start-ups promises swift approvals for starting enterprises, easier exits, tax and fiscal incentives, faster registration of patents and protection of intellectual property rights. It signals a possible end to the inspector raj that has sapped the energy and spirit of many young entrepreneurs in the country. Unlike India’s large business groups, small entrepreneurs find it difficult to navigate the complex bureaucratic and regulatory maze. From that perspective, these supply-side reforms are welcome. What makes this initiative especially welcome is the fact that start-ups hold the potential of creating more jobs at a time when the manufacturing sector is facing a slump that may last longer given global economic prospects and the slowdown in China, which has been one of the engines of global growth. And with growing automation, the manufacturing sector may no longer be in a position to create jobs. The fact is that there is a fundamental problem of demand and the real challenge for the Indian economy now is to fund several large projects — be it roads, highways or railways. That’s why it is heartening to see the government attempting to provide an enabling policy environment for start-ups, which are job creators much like the large number of self-employed who form a significant part of the country’s labour force.
But should the government, which says it wants to be more of a facilitator, get into the funding of start-ups? There has been enough capital chasing start-ups in India, including e-commerce firms, with a predominant share coming from overseas investors, unlike in the US or China, which are ahead of this country in terms of the number of new-age firms. Tax breaks do help, but global experience shows that what is more critical is an enabling regulatory and business environment that will foster innovation and have a cascading impact on entrepreneurship. Indian policymakers appear to be grasping this imperative but the funding now on offer could perhaps be directed more towards entrepreneurs who find it tough to raise capital in segments such as food processing, rather than mobile-based applications or e-commerce firms, for whom raising money isn’t a major problem.
The government’s approach of targeting start-ups to power growth over the next decade is well judged. But the easing of rules and creation of a conducive policy environment should not be restricted just to start-ups. It should be extended to all businesses. That will be the real test, along with getting more Indian firms domiciled overseas because of rules here to move back. Otherwise, the losers will be the government and local investors.

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