'India cannot function the Chinese way and the sooner people realise that, the better it will be.'
Illustration: Dominic Xavier/Rediff.com
"In India, if there is a loophole, somebody will figure out how to use that loophole. We understand the need to close loopholes, but if every law was designed in such a way that there was no loophole, all our lives would be miserable," Nasscom President R Chandrashekhar tells Alnoor Peermohamed and Raghu Krishnan.
India added a little over 1,000 start-ups last year. Investments rose 167 per cent in the first six months of the financial year, but most funds went to Paytm and Flipkart, says a study by Nasscom and Zinnov.
Start-ups less than five years old saw funding drop 14 per cent in the first half, and angel funding reduced by over half due to taxation rules.
India sees start-up mortality of 35 per cent, partly due to tougher rules to open or shut one.
Bengaluru, Delhi-NCR and Mumbai were the key hubs even as one in five start-ups emerged from smaller towns.
Funding in early stages dropped. Why?
There are three dimensions to that. One is a shift from B2C (business to customer entities) to B2B (business to business); B2B requires less funding.
If you look at all the start-ups, including the erstwhile ones, funding has gone up.
The fact is that B2Cs are big money guzzlers and we all know why; we've seen that in enough companies in that space.
The second is that the number of start-ups itself has come down.
We had 1,400 or so last year; this year, it's around 1,000.
And, the third and the troublesome part is the seed funding coming down, as that represents the future.
The fourth aspect is that the ease of starting a business is where a lot of work is needed.
All of these, in some way or the other, have a bearing on the funding.
The issues around Angel Tax have been around for a while. Why such a sudden drop?
Investors understand the potential very well, but the issue is around the way taxation is happening. Not a new issue.
We've been pointing it out for two years, there's been an agreement and in fact a consensus on what needs to be done.
But, as we have been pointing out, the challenge has been to find a way that solves this problem without opening the floodgates for people who want to misuse it.
As you may know, it has been used for money laundering, corruption and bribery.
In India, if there is a loophole, somebody will figure out how to use that loophole.
We understand the need to close loopholes, but if every law was designed in such a way that there was no loophole, all our lives would be miserable.
A law which seeks to prevent crime rather than punish crime is always going to create a problem for citizens.
That mindset we have to address. I know it's a deep problem.
Will we lose on critical opportunities in newer areas? Every country is investing in new tech and we have this gap.
Of course, we will lose out. There is no doubt.
Regulation has to be changed and the mindset with which you make that regulation has to change. Two examples:
You look at our map policy. When people were looking at it primarily with the concern of security, the economic opportunity and the value that can come through service through maps; your regulation will never help that.
The second example of one of the good moves is that the government has come out with a belated but much-needed draft policy on drones.
How can drones fit into the country's economic landscape?
Imagine what drones can do in the agriculture sector, with drone-assisted spraying of pesticides or something like that. Imagine how much it'll optimise inputs.
If it can improve productivity by even five per cent, in a country like India, that is huge.
The government has been saying that SMEs (small and medium enterprises) and start-ups will get opportunities in public sector procurement. Are you seeing anything on the ground?
No. It's not visible on the ground.
Take an example of some of these newer technologies that can be implemented in education, agriculture or health care.
These companies are not going to get a chance in Argentina or Chile to prove that it's working there.
The way government procurement is currently done, it does not allow a new or an innovative solution or one that does not have a certain value to come in.
Most start-ups have zero net worth, if not negative.
Unless some of these issues get addressed, the governmental market opportunity will also not be available to them.
Half the spending on technology in this country is in the public sector and government. These are issues which need to be addressed.
Progress will happen to some extent, with or without the government, but if you really want to reach the potential and look at how much we could have grown versus how much we are doing, it's not good.
The argument for a lot of people who want protectionism is, could we replicate the model of China, for the simple reason that you are no more talking about physical goods but data of individuals.
The guys with the most amount of data will win. Isn't that a valid argument?
It sounds valid, but delve a little deeper.
What was the argument that kept us with Ambassadors, Fiat and Standard Herald (cars) for 40 years?
It was that if some other people come in, they will capture the entire market and these Indian companies will be destroyed and the value will go elsewhere.
In that type of a situation, did these people invest in technology, did they invest in improving the product, did they invest in adapting their products to Indian conditions?
We all know what happened.
Here, if you follow this argument to its logical conclusion, then you should say, let us use a domestic search engine.
Whether Google is better or not, that is immaterial.
Then, take social media, whether Facebook has better features or not, you use a domestic player.
That's how China has done it, with a combination of language and government fiat.
But China is a very different country. Their government and industry work as a single entity.
In India, that is not possible.
If there are two companies, how can the government choose one over the other? They will be flayed if they do.
At the end of the day, we have to work within the framework of our Constitution.
India cannot function the Chinese way and the sooner people realise that, the better it will be.