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Stop startups from setting base abroad, iSPIRT tells Govt

February 6, 2016 | Business Standard
Source -

India may see an exodus of startups that raise venture capital and private equity funds to domicile in either Singapore or the US, if the government does not address  34 issues, collectively called the stay-in-India checklist, iSPIRT, the lobby group for home grown software product innovations has warned.

In 2015, three out of four companies that raised funds from global venture capital firms were domiciled outside India, up from 54 per cent of the firms in 2014. Six out of the eight Unicorns (startups valued at over $ 1 billion) have been domiciled outside of India, either in the US or Singapore. 

“Work on resolving these have been underway since October 23. It seems that 60 per cent  of the issues seem to be on their way to a resolution by the time of Budget. At one level, this seems like great progress," said iSPIRT in its annual letter for 2016 to its stakeholders. "However, this 60 per cent  implementation is actually a recipe for failure. Just one friction point is enough to send the startup to Singapore, where, a welcome band awaits. Unless all the 34 items are resolved, exodus will not abate." 

Finance Minister Arun Jaitley is expected to present his third budget on February 29.

iSPIRT had created a checklist of 34 items, down from an initial plan of 200 changes required to be sorted out by the government and its multiple agencies  such as the Ministry of Corporate Affairs, Finance Ministry, Income Tax department  and the Reserve Bank of India. Some require policy changes and few need collaborative effort from multiple departments to work together and ensure smooth functioning of work.

The concerns include ease of incorporation and liquidation process of companies, allowing foreign venture capital investments across sectors, favourable intellectual property regime, harmony in taxation of listed and unlisted entities and permitting convertible notes.

Prime Minister Narendra Modi has launched a Startup India Action Plan, which has promised relaxing rules to set up businesses faster and also reduce friction with regulatory inspections in the first three years of operations. Reserve Bank of India has also come up with a few policy changes such as startups across sectors eligible for foreign venture capital investments and collection of payments by startups  on behalf of their subsidiaries abroad.

"It is a good start. There are multiple agencies involved. Some of them have moved, others have to move," said Sanjay Swamy,  managing partner with Prime Ventures and a volunteer with iSPIRT. "The aim is to make India a preferred destination and not  just an acceptable destination. The competition is here not Karnataka and Andhra Pradesh, but with Singapore and US."

Flipkart and InMobi, the two Bengaluru-based Unicorns and leaders in their respective business segments have already domiciled outside of India. 

The government accepts that they have to address the issue. The Finance Ministry has said that there would be announcements in the budget. "Eight issues from the checklist are still there to be resolved," said Sharad Sharma, convenor of iSPIRT.

"Providing the right infrastructure will empower technology, IP and product based start-ups to grow through innovation and design. Hence, retaining Start Ups will build a strong eco-system for nurturing their development in the country and will drive sustainable economic growth, generating large scale employment opportunities.” said Vishnu R. Dusad, CEO, Nucleus Software, who is also member of the governing council for iSPIRT.

iSPIRT said that the National Policy on Software Products is in the works and should be out in a few months. "It represents a new paradigm of policy making. For starters, it has no sops! Instead, it takes an integrative view of changes that are needed to creating an enabling environment. It eliminates FERA-era norms that prevent Indian product companies to go global,"  the letter said.