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4 things NaMo can do to help start-ups
Young entrepreneurs from India are looking up to Narendra Modi with great hope. Read on to learn why...
Narendra Modi or NaMo is perceived to head the new government in India. But is he ready to meet the expectations of the masses, particularly those of entrepreneurs?
Given the thumping majority he's received from the recently concluded polls, he may soon get an opportunity to change the course of this country.
Young entrepreneurs from India, both existing and aspiring are looking up to him with great hope given that in the last decade no concrete measures have been taken to eliminate unwarranted delays in starting a business or for reducing hassles of reporting with various authorities.
According to the Ease of Doing Business index, India ranked 134th in 2014.
Why is India not able to climb up the ladder? Why is it lagging behind?
Why is it so hard to start a business in India as compared to other emerging economies of the world?
The new government needs to take actionable steps to encourage entrepreneurship and investment in India.
It has to pay high and right attention to improve India's business rankings.
In this article, we will discuss what changes the new government which is perceived to be headed by Narendra Modi can do to help the overall business eco-system of India.
1. Reduce time taken to start a business by automatic approval and single window system
The current structure has very difficult compliance requirement for businesses.
The new government needs to plan for minimal regulation, compliance and reduce paperwork hurdles for starting a business.
Measures should be taken to reduce time taken to start a business in India -- currently, it takes more than 35 days.
We as consultants have to both convince and explain our clientele especially international clints, who continue to question as to why the registration process takes 35 days in India while in other countries the process is completed in anything between 24 hours and two days.
In addressing some of these challenges, the government should start an auto approval system or a straight cut process by casting more responsibility on qualified professionals.
An entrepreneur in addition to registration of his business entity also has to go through the rigour of getting state- and centre-specific registrations, approvals like trade license, environment approval, Service Tax registration, Excise, VAT and a few more, which naturally delay the time taken to start-up.
Since most of these registrations are obtained from different departments of the State or Central government, the process gets delayed further.
Why can't there be a single window -- like an online or offline platform where the aspiring entrepreneur gets end-to-end information about the registration, compliances, taxes, etc.
The platform should provide a common place to get clearances for central as well as state level formalities.
The author is a qualified Chartered Accountant and a commerce bachelor from St Xavier’s College. He is also the founder of Taxmantra.com, a start-up that addresses pain points of individuals, businesses and start-ups.
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2. Allot time-bound tax exemption/relaxation to new businesses
In terms of taxation, the time consuming and complex nature of the system results in the slow rise of new ventures.
The new government should simplify the tax rules; improve tax compliance and lower tax litigations.
In the past, IT services giants like Infosys and Wipro benefited immensely with tax holidays on IT exports.
Similar tax incentives are much needed for current IT start-ups as well and for start-ups in industries like healthcare and manufacturing.
Start-ups in India can be given tax exemptions on the line of Singapore tax exemption scheme according to which a newly incorporated company that meets certain qualifying conditions can claim for full tax exemption on the first $100,000 of the normal chargeable income for each of its first three consecutive assessment years.
A further 50 per cent exemption is given on the next $200,000 of the normal chargeable income for each of the first three consecutive assessment years.
Schemes like these will give great boost to our start-ups that are currently paying taxes right from the first year onwards and on every single penny of profit it makes.
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3. Focus on skill development and make young population employable
As per a research, India has a youth population of 300 million. Correspondingly, it has just 100 million jobs available.
Another research shows that only three out of 10 are actually employable based on their skill sets.
The new government should focus on improving skill sets by introducing special training courses, development and skills programmes to develop skilled talents thus helping aspiring entrepreneurs who are always hungry to hire skillled candidates.
There are more than 5000 Industrial Training Institutes in India.
However, the quality of training is not up to the mark. They have poor infrastructure, outdated curriculum, less qualified instructors and limited interaction with the industry.
The entrepreneurs who hire them spend considerable amount of time and resources to first train them before they are employable.
It would be immensely helpful if the new government can work alongside the business class. While businesses can train the young force on the job, government can motivate businesses by providing wage subsidy for a defined period.
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4. Improve access to funding and bring transparency
Start-ups require a financial system which is both supportive and provides the necessary risk capital to aid innovations and enterprises.
The new government should ensure that funding programmes should focus equally on small early stage start-ups also rather promoting only relatively large and safer investments.
The government should start a dedicated fund, seeded by the government, and targeted at promoting innovative initiatives.
Today our start-ups are primarily dependent on private investments coming from India and abroad.
The main reason for this is that the government designated fund is hard to get due to unnecessary bureaucratic bottle necks and lack of transparency.
The new government should allocate funds sufficiently for entrepreneur-related investment schemes. This way, no start-up with a potentially great and innovative idea will suffer for lack of funding.
It is no secret that start-ups are funded based on future prospects of the business idea and not on the current value of the assets of the company.
The government, sometime back, amended the law to restrict issuance of equity shares at a premium and attached various conditions on it.
The law states that a portion of consideration received for the issue of shares of a public unlisted company or private company that is in excess of the fair market value of those shares, will be subject to tax in the hands of the companies under the head "income from other sources".
With the introduction of this clause the participation of private equity funds or high net worth individuals has been affected and there is a serious impact on genuine start-ups and other Small and Medium Enterprises (SMEs), as they largely depend upon angel investors or private equity funds for their funding.
Such funding is normally at a substantial premium as the underlying assets of the start-up do not support a higher fair market value.
The new government should try and provide relaxation in this aspect since this provision is creating hindrance in the developing culture of angel investors and private equity funds, funding innovative entrepreneurs, who have the desired skills but have limited resources.
To conclude, the new government should manifest their role as catalysts to stimulate entrepreneurship.
In a developing country like India, downturn of entrepreneurship will be a serious threat to the economy.
Narendra Modi supposedly heading the new government should help, as he would be benefited with his past proven work and with the vision for holistic economic development for India including start-ups.
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