India in line with the global trendIndia in line with the global trend

India is the
second largest populous country in the world with 1.2 billion population
strength. To cover up this large population there exist large potentiality of
job market in India. To this extent, the Government of India has initiated to
promote Bank financing for start ups and offer incentives to boast
entrepreneurship and job creation. Startups
have been the flavor of the season in the Indian markets over the last few
years. This has resulted into the emergence of a number of home grown startups across
in India. One of the major contributors leading to this development has been
the mega funding. It has been ploughed into most of the firms between the
period 2007 and 2015. This has been accrued in line with the global trend which
is the dominating the space. Even the aspiring firms have had a decent run
during this period, where managing to find investors is usually considered a huge
task. Making big bets on Indian innovation has become a global point of
interest. The Prime Minister, Narendra Modi, launched an ambitious program
called Startup India Standup India. This was aimed at revolutionizing and
accelerating the startup revolution in India, which is already witnessing
strong traction. However the road to success
is not as smooth as it appears to be. The Indian businesses are suffering from
various problems such as the unorganized and fragmented Indian market, lack of
clear and transparent policy initiatives, lack of infrastructure, lack of
knowledge and exposure, complications in doing business, etc. the least now
being identified as issues that need to be addressed. The framework and course
of regulations need to be updated and adopted as per the changing times. It is
the duty of the policy makers for right policy announcement to bring and brought
up startups in India

 

Keywords: Global Point, Bank financing, Venture
Capital and revolution.

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*Research
Scholar, Department of Sociology, Kakatiya University, Warangal, Telangana
State.

 Mobile No. 9849471896, Email ID: [email protected]

**Professor,
Department of Commerce & Business Management, Kakatiya
University, Warangal, Telangana State. Mobile No. 9390106918, Email ID:
[email protected]

Introduction:

Startup India aims at promoting
bank financing for startup ventures to boost entrepreneurship with jobs
creation.  Prime Minister Narendra Modi
while addressing at Red-Fort in his 15th August 2015 focused on to
restrict state role in policy domain and to get rid of license raj and
obstacles like in land permissions, foreign investment proposals, environmental
clearance.  A startup is an entity that
is a head quartered in India for opened less and seven years ago.  It has annual turnover less Rs.25
crores.  The Government launched I-MADE,
an app development platform aimed at producing 1,000,000 apps and PMYMM, the
Mudra Bank.  The Startup India is also
aimed at promoting entrepreneurship among women and SC, STs. 

“The Startup India initiative is also
aimed at promoting entrepreneurship among SCs/STs, women communities. Rural
India’s version of Startup India was named the Deen Dayal Upadhyay Swaniyojan
Yojana. To endorse the campaign, the first magazine for start ups in
India, The Cofounder, was
launched in 2016.

A
startup is a young, dynamic company built on technology and innovation wherein
the founders attempt to capitalize on developing a product or service for which
they believe there is a demand. A startup is a young company that is beginning
to develop and grow, is in the first stages of operation, and is usually
financed by an individual or small group of individuals”1.

 

II. OBJECTIVES OF THE STUDY:

Ø  To
review the benefits of startups India.

Ø  To
analyse the opportunities for Startup in India in the economy.

Ø  To
identify the challenges and issues faced by Startups in India.

 

III. Research Methodology

The
study is a humble beginning. It is mainly based on secondary data. The
researcher is interested to set up a startup, hence the study has been carried
out by referring various news papers, books, reports, magazines, journals etc.

IV. Benefits under Startups India

To promote
growth and help Indian economy, many benefits are being given to entrepreneurs establishing
startups by the Government of India.

1.     
Simple
process: Government
of India has launched a mobile app and a website for easy registration for
startups. Any entrepreneur is interested in setting up a startup can fill up
a simple form on the
website and upload certain documents. The entire process has been completely
online.

2.  
Reduction
in cost: The
government also provides lists of facilitators of patents and trademarks. They
will provide high quality Intellectual Property Right Services including fast
examination of patents at lower fees. The government will bear all facilitator
fees and the startup will bear only the statutory fees. As a result, the
entrepreneurs will enjoy 80% reduction
in cost of filing patents.

3.     
Easy
access to Funds: In order to bring startup culture in India a 10,000 crore rupees fund is set-up by government to
provide funds to the startups as venture capital.  The government is also
giving guarantee to the lenders to encourage banks and other financial
institutions for providing venture capital.

4.     
 Tax
holiday: Startups will be exempted from income tax for 3 years provided
they get a certification from Inter-Ministerial Board (IMB).

5.     
 Application
for tenders: Startups
can apply for government tenders.
They are exempted from the “prior experience/turnover” criteria applicable for
normal companies answering to government tenders.

6.     
 Research
&Development facilities: Seven new Research Parks will be set up to provide
facilities to startups in the R&D sector, so has to promote startups
culture in India.

7.     
  No
time-consuming compliances: Various compliances have been simplified for startups to
save time and money. Startups shall be allowed to self-certify compliance (through
the Startup mobile app) with 9 labour and 3 environment laws for list of white
industries which are eligible under self-compliance.

8.     
  Tax
saving for investors: People
investing their capital gains in the venture funds setup by government will get
exemption from capital gains tax, thereby helping startups to attract more
investors.

9.     
Right
to choose your investor: After
this plan, the startups will have an option to choose between the VCs, giving
them the liberty to choose their investors.

10.   Easy exit: In case of exit – A startup
can close its business within 90 days from the date of application of winding
up

11.   Opportunity to meet other
entrepreneurs: Government
has proposed to hold 2 startup fests annually both nationally and
internationally to enable the various stakeholders of a startup to meet. This
will provide huge networking opportunities.

 

V. OPPORTUNITIES:

            There
will be great opportunities for Indian startups because India has been
transformed into big multi cultural society rather than its yester years.

1. Large Population: For startups, it is not
essential to go elsewhere including overseas since India having population over
a billion is a huge home market for any goods and services. Rising disposable
income among middle class and their growing aspirations, have a large appetite
for brands. The huge population of India has also led to a consumer expenditure
growth, thereby it has propped up supply and production. Startups that aim at
service and cater to the large population in providing a utility in consumer
markets stands to do well.

 

2. Spread
of Mobile Penetration:  India’s tele-density reached 76.55 percent
with a subscriber base of 95.76 crore according to TRAI. Wireless subscriber
base also touched 95.76 crore significantly. High mobile penetration in rural
India has been reshaping the economy part from the urban. It has led
efficiencies and increased productiy for movement of goods and services. Mobile
penetration has led for businesses profits through faster decision making,
better logistics and even something like access to bank accounts. It is has
also led to increased financial inclusion and flow of credit to the rural
people. The mobile penetration growth has been transforming the way traders and
consumers communicate and work. Mobile Phoen penetration transformed the nature
of startup and businesses in a significant manner since the startsup can
develop mobile apps and have ever increasing market to cater the needs of
people in India. Existing frameworks in India can prove to be inadequate and
there is a need to leverage a billion minds thereby becoming a global power.
Entrepreneurship and Startups can be instrumental for India in becoming a
knowledge superpower. 

3. Demographic
Dividend: India with a 300 million 10-24 year olds have the largest
concentration of youth population. This augurs well for the country has a
health care and right education can see the economy soar. Youth can be a driving
force behind innovation, creation, and future leaders of India by aiming at
demand and consumption pattern in India. 
Further, youth can make up the workforce for startup.

India has a unique set of problems – health, education,
infrastructure, sanitation etc. and solutions of western world cannot be
applied to solve above problems. With the help of these startup can solve these
problems because each problems is an opportunity for their entering into the
form of startup.  Indian startups to
aquire even bigger scale and at the same time make a meaningful impact around
the world. 

VI.CHALLENGES: 

Indian startups are facing their own set of challenges
irrespective of their kind.  These are classified
as under: 

1. Culture: Startups
and Entrepreneurship are recent phenomenon in India. People of India have
moved from job to job creators a decade and half years ago. Doing a startup is
tough and every startup have the problem of failures rather than success. An
entrepreneur needs to be prepared to face failures and unprecedented hardship. Indians
are not groomed to fail culturally. A startup failure will teach the
entrepreneur what to do and what not to do in future. People will look down
upon failure which is conditioned by our culture. To overcome
from failures, the encouragement is not done as and when it happens. Entrepreneurship
is often about failing and learning from those failures and starting all over
again. It can be suggested that the people need to start accepting failures and
allow for second chances.

2.
Mentorship: Doing a startup is a lonely journey and perilous job. The
startup can have co founders but one may not necessarily possess the business characteristics
to succeed. One may have a brilliant idea but cannot transform that idea into a
big business success.   It is very important to have mentors who have
been through a similar process of starting or have business experience for any
startup. A great mentorship is often what separates success from failure by
providing valuable inputs. However, there is a lack of formal mechanism for
mentorship in India. Often mentoring that happens on an ad-hoc basis. A startup
that has raised funds can count the investors for some form of mentoring, but
honest, unbiased.  For startups finding a
good mentor is often an uphill task.  The government should think for
grooming and developing for a good mentorship system thereby can aim at a large
number of startups which provide large job opportunities.

3. Policies:
Another issue is issues related to legalities and
requirements such as clearances, licenses, approvals required as well as issues
related to resource availability including finances, technology and manpower
supply. Government is the
single largest enabler for the entrepreneurial ecosystem since the Government’s
role is making ease of doing business and helping companies start is vital to
ensuring success. India ranked at 142 out of 189 economies with regard to ease
of doing business according to the World Bank Report where starting a business
rank for the country is even lower at 158.  India has been
ranked 155th in case of starting a business. Indian businesses need
to make 33 tax payments annually with around 243 hours spent to prepare and pay
taxes in a year on an averagely.

The multiple laws and regulations in India take about 30 days
to comply when compared to just 9 days in OECD countries. The government has
been encouraging the startups by giving out the grants and loans.  However, it has to focus on implementation by
having an effective mechanism and good environment.  The government’s role in making
polices should be “Teaching people how to fish rather than giving fish to them
for their dinner”.

4. Hiring:
The days
of high growth are long gone both in Indian and world economy.
It is particularly difficult to make correct estimates on the number of
employees needed for a startup and it is very difficult for the new comer in
the business to go for a better demand forecasting and forecasting for
workforce. Even if the entrepreneur forecast for workforce, findings killed
manpower is a difficult task.  As a part of startup programme, the
government has established National Skill Development Corporation (NSDC) which has
been mandated to skill 150 million Indians by 2022. A startup often cannot
match the salaries drawn at larger companies nor is a job at a startup seen as a
steady one. This means startups face severe hiring challenges and at times have
to settle for the next best option. 

5. Funding:
The Capital and access
to capital has been a inherent problem for startups in India. A large number of
startups still face problems to raise funds from institutional setup apart from
the participation of angel investors, venture capital and private equity. Startups
do not get funding from banks in the initial phase of operations. In addition, credit
rating firms are also limited number of for small and medium sized enterprise. Startups
struggle to survive the competition despite having raised good investments..

The
following table explains the venture capital funding in startups in India which
is main channel for growth and development of the startups.

VENTURE CAPITAL
FUNDING IN STARTUP

During 2015 and
2016

                                                                                           
(Rupees in USD Billions)

Month

2015

2016

No. of Deals

Amount
Invested

Growth rate
(%)

No. of Deals

Amount
Invested

Growth rate
(%)

January

99

473.05

118

275.88

February

94

385.81

81.56

116

199.41

72.28

March

127

967.36

250.73

109

295.34

148.11

April

99

385.96

39.99

90

139.68

47.29

May

126

465.29

120.55

83

134.38

96.21

June

111

335.94

72.20

85

305.38

227.25

July

134

589.12

175.36

86

265.74

87.02

August

140

1114.68

189.21

85

340.90

128.28

September

129

314.23

28.19

65

310.12

90.97

October

115

934.13

297.67

78

216.01

69.65

November

142

486.23

52.05

72

255.02

118.16

December

137

468.08

96.67

12

24.27

9.52

Total

1453

6919.88

 

999

2762.13

 

             Source: NEWS Corp VCCedge

The table reveals that there were
1453 deals accounting for USD 6919.88 and the number of deals with few
variations has touched more than hundred deals during 2015. There were 999
deals accounting for USD 2762.13 and the number of deals large variations has
touched to a minimum of twelve accounting for USD 24.27. It appears that the
Government of India did not impress the venture capitalist for funding in
startups in India.

It difficult to maintain records
both financial and operational for the most startups which are self/family
funded with limited workforce. Startups suffer from the problem of Capital and
access to capital. Government and private sector investors have set aside funds
through investment channels however those funds are not sufficient for all the
forms of business.  The biggest problem
for such organizations has been to attract investors and gain their trust with
regard to their mode of operations. The startups in India also suffer from
effective cash management.  Cash is still
a preferred option for payments owing to the fact that electronic payment has
not achieved complete penetration to Tier 2 and Tier 3 cities in India.

6.
Social issues: Mentorship/Guidance: Lack of proper
guidance and mentorship is a major reason for most startups in India behind
their failure. An important factor behind failures and slow growth of some
organizations is the lack of quality mentorship, especially in terms of
industry knowledge/support.

Indian Consumer Behaviour changes
in every 30-50km which makes difficult for a startup to create business or
market strategy for their products or services. As a result, most startups were
failed and gradually shut down. An important problem faced by startups is
related to location of their business. India is a place of varied culture and
taste and thus every product might not be suitable and welcomed equally in
every region in India.

7.
Technology infrastructure issues: Appropriate IT has
become a need for Indian businesses which a transformed consumers to go online
for demanding the products. It is very important for new startups to train
their employees for handling critical customer information such as credit card
numbers etc.

Most startups have a B2B business
model. Thus the cyber risk may rise as they are not aware of potential risks.
No back-up plan to keep the startup company running when an accident destroys
some key equipment in their data centre.

8.
Sustainability Issues: The level of knowledge that
business advisers have about ecological issues and their willingness to discuss
this with their clients is important in creating business ventures. Provision
of more information directly to business founders could help in the adoption of
more sustainable business practices. Most entrepreneurs are not aware of
potential that might exist for their startup business. Further, role of public
funding in promoting sustainable enterprises is often overlooked

9.
Regulatory Issues Multi window clearances: Budding
entrepreneurs have to make multiple trips to government offices to register and
seek clearances. There is urgent need to scrap multiple regulatory clearances.

10.
Taxation Issue: the Government of India has enacted
GST Act with a aim One Tax One Nation with w.e.f July 1st 2017 the
GST filed returns filing is a barrier for technology adoption and proves to be
an immense hurdle for budding entrepreneurs.