Modi's Start Up India is no magic wand for jobs or growth
There has never been any doubt about Prime Minister Narendra Modi's comfort on the proscenium. The stage was once again tailormade for him last Saturday (January 16) when past dusk he was ushered into an almost packed Vigyan Bhawan. In front of him was that India with whom Modi is most comfortable, personally and politically - the section which shares his impatience and is gripped a constant ennui of kuch karna hai.
Besides the audience which gathered at this venue, stage of several historic summits and conclaves, the India that Modi addressed also included students and teaches of IITs, NITs, central universities and other institutions of higher studies who were connected by live video links. This was that India that Modi was attempting to reclaim after it deserted him substantially over 2015 - a reality reflected in two successive polls in Delhi and Bihar.
Modi prefers speaking in Gujarati or Hindi and there is nothing wrong with this. But the India in front that was seated in front of him is more adept at English. So began an almost three quarter of hour long speech with liberal sprinkling of English words and phrases. No problems with that - despite the fact that using Saturday instead of Shaniwaar as the second word he uttered, would be frowned by scholars of linguistics.
These linguists will also find key takeaways about which ideas are phrased in English and why: hotel chain, register, seeing is believing, ideas, risk taking capacity, adventure and of course success story.
But leaving all this aside, what was Modi speaking about and what was the occasion? The official programme was the launch of Start Up India, Stand Up India programme. Was this something that was being unveiled for the first time and therefore necessitated such a big build up and hype? No, the idea of Start Up India and Stand Up India was not new and had in fact been announced several times in the past 20 months since Modi became prime minister.
To begin with, in his first budget in July 2014, finance minister Arun Jaitley announced a Rs 10,000 crore "fund to act as a catalyst to attract private Capital by way of providing equity, quasi equity, soft loans and other risk capital for start-up companies". The scheme was launched because Jaitley declared that "promotion of entrepreneurship and start-up companies remains a challenge. While there have been some efforts to encourage, one principal limitation has been availability of start-up capital by way of equity to be brought in by the promoters."
There was little follow up of this announcement but nine months after this, Jaitley launched another scheme - India Aspiration Fund (IAF) that was established as a fund of funds under the Small Industries Development Bank of India (SIDBI). The official proclamation was this was done to energise the start-up environment in India. No explanation was given as to how this scheme, with an initial corpus of Rs 400 crore and later ramped up to Rs 2,000 crore, was different from the scheme announced in the budget speech.
Four days before Jaitley launched the scheme under SIDBI, Modi had held forth to deliver the longest Independence Day speech at the Red Fort in recent memory. In this, he too referred to Start Up India, Stand Up India. While he exhorted Indians to stand up, the government sat down and it took another five months for the scheme, originally announced by Jaitley but re-proclaimed by Modi, before this was formally launched last week. Such delay would be understandable if the scheme was suitably large. But is this the case?
Essentially, repackaging of what has already been put in motion - like the infamous Bihar package - Modi's glorious call to budding entrepreneurs to share his India dream will be backed by just Rs 2,500 crore every year and that too for four years now. Anyone who knows figures well is aware that this sum amounts to barely a fraction of the total funds required for start-ups to become a big enough sector to be able to provide a significant share of jobs for the unemployed youth.
While from the point of view of funds provided, there is little incentive barring for a handful of initiatives, to be domiciled in India - the problem with most start-ups that have a significant public presence in India (Flipkart, for instance, is registered in Singapore but has its head office Bangalore), clear eligibility guidelines are required. But here too the issue of who is eligible for this fund and who is not is wrapped in ambiguity.
A start-up is defined in the department of Industrial Policy and Promotion paper that was released at the function as an entity "working towards innovation, development, deployment or commercialisation of new products, processes or services driven by technology or intellectual property". Such a definition may be warranted in Wikipedia or in other media reports but not in government criteria to disburse funds.
Moreover, under the stipulation of the "identification of businesses", it is stated the scheme is open for those projects that is "a new product or service or process; or a significantly improved existing product or service or process". The moment phrases like "significantly improved" one can visualise how troublesome it will be for young entrepreneurs to try convincing this to stone-age babus. Similarly, "products or services or processes with no or limited incremental value for customers" will be ineligible. One is not sure how many of successful start-ups of the day would have been considered to have "incremental value" for customers when they were launched!
Already some sceptics in the sector have questioned the tom-toming of tax exemption and concessions for the initial years. They argue that since in the first few years, start-ups don't make any profits and are essentially viewed as time investment by the promoters, this is no cause for being driven to be based out of India. A much better idea would be to look at markets here, but be registered outside India to avoid regulations here.
Like several other schemes that Modi has announced, Start Up India may, on the short-term, make the upper middle classes and the techno-savvy India, stand up, take notice and renew their faith in Modi, but it will do little for his middle-term objective of generating jobs and driving growth, which alone can deliver to him another tenure when elections are held either in 2019 or earlier.