According to research by Kauffman Foundation (2013), 33.2% of the co-founders of the tech firms in US are Immigrants and are mostly Indians (since 2006). As against this fact, Indians becomes more reluctant when it comes to starting up in their own country. This is because; way to build a startup in India is full of obstruction. Still startups are meant to register with Indian Authorities & navigate through a maze of approvals before starting a business.
According to an article by economic Times (Jan,2015), it was projected that three of four new technology startups that focus on the global market and plan to raise seed or venture capital will be domiciled outside India. Nine of the top 30 business-to-business software product companies by market capitalization have already relocated to the US, Singapore & the UK, according to iSPIRT's first Software Product index (iSPIx).
Top Indian companies such as online retailer Flipkart and mobile advertising firm InMobi have already re-domiciled to Singapore, Hungry for intellectual property. Some of the startups even moved to UK after finding it difficult to work in the Indian regulatory environment. UK’s regulatory environment provides friendly & pro-active tax regime and benefits such as R&D credits and capital gains tax credits for entrepreneurs, as appose to India.
Lets look at some of the obstructions which Indian startup is facing:
Funding
The regulatory environment makes it difficult to raise funds in India. Industry experts claim that startups in India get a negligible amount of funds, in which it is hard to manage their early stage risk capital.
During recent times things changed rapidly, Indian startups are getting funds, but only handful one. In India, there is too much capital chasing after too few businesses. As per the database of Tech in Asia, there are 2,000 companies tracked in Southeast Asia, half have seed funding, 104 are at series A, and 34 firms are at series B and above. Few startups are over flushed with the funds from the investors while other potential once are struggling to run on their own.
Taking into consideration the high-interest rates and lengthy processes involved in getting funds, debt as a source of funding is also not a viable option.
Again, unlike the scenario in the US, personal funding becomes difficult as people are not financially stable here and have family responsibilities to take on – which demand the immediate revenue that can come from a job.
Taxation Policy
Heavy taxation policy in India poses a big challenge for startups to sustain & generate profits. In accordance to the startup policy, startup firms are mandated to pay income tax on the premium they have charged over their fair market, while selling shares to unregistered investors, including private equity and venture funds (subject to justification). There are countless types of taxes which any company needs to pay; based on the type of company & industry they are serving in. Any startup usually falls in the bar of giving many taxes which includes corporate tax, State VAT, CST, TDS, Service Tax, property tax, education cess etc. Though this aims to improvise inclusive growth into the country, analysts say it will affect the investment scenario for startups.
Other Regulatory Hurdles
According to Doing Business Indicator Report by The World Bank; it requires around 2-5 months starting a business in India. Although, the rank got increased by 9, but still India ranks 155 all over the world in setting up a business.
Even for enforcing any commercial contracts regarding payment disputes, enormous time is required. Time taken to enforce contract from the stage of evolving dispute to the stage of solving the dispute can be extended to more than 8 months.
Getting Right Talent
Getting correct candidate always becomes difficult for a startups. As per societal norms, Indian mindset says that getting a job in big brand improves career growth. Also, a job security and employee benefit plays a pivotal role in the decision making.
Apart from this, in recent times it is also seen that highly funded startups like Housing & Flipkart are creating difficult times for small startups. These heavily funded startups attract talented people with high salary and employee benefits, which is difficult for self-funded once to provide in the early stage.
After ‘Startup India, Stand up India’ campaign launched by PM Narendra Modi, things are progressing interestingly.
Recent Improvements
In Oct, 15, as per Nasscom study, India ranked 3rd among global startup ecosystems with more than 4,200 new-age companies. The report suggests 3-4 startups being born every day, and nearly 5 billion dollars of funding coming in 2015. It is notable that India is just behind the US and the UK, & is now ahead of Israel. Study also suggests that India is the youngest startup nation in the world, as 72% of the founders are less than 35 years of age.
India inspires to become 2nd in the startup ecosystem list, hence Nasscom official submitted a 10-point recommendation report to the government to ease out the regulatory hurdles for startups.
In response to this, Indian Government announced that they are lowering the regulatory hurdles in order to promote investment & generate jobs. Some of the proposed changes are as follows:
Exempting from Federal Rules & Regulations
They are attempting to exempt startups from 22 federal rules & regulations – such as labor & company laws – until their turnover reaches a certain level.
Exempting startups from certain taxes for a specific period of time
Creation of Funds for supporting them financially
Liberalizing the system for raising Global Capital
Mr. Amitabh Kant, top bureaucrat at the Department of Industrial Policy & Promotion, said “We wish to emerge as the world’s top destination for startups, for which we will provide a hassle-free business environment”.
Ref:
http://www.wsj.com/articles/india-looks-to-reduce-hurdles-for-startups-1444641535
http://tech.co/problems-facing-indian-startups-2013-02