Ease of doing business is important for any enterprise, but critical for startups. With limited resources, they cannot afford to spend too much time, money and effort in navigating a complex environment, populated by archaic laws and a labyrinth of registrations, permits and approvals.
India is buzzing with entrepreneurial activity like never before. As per the Nasscom Start-Up Report 2015, currently there are 4,200 venture-funded startups in the country. Countless others are bootstrapping. These startups are the new engines of the Indian economy and the more we clear the path for them, the faster they will grow. It is heartening that the government is consciously pursuing a process of effecting reforms, which cumulatively will make it easier to do business in India. In the past year, India has already jumped up 12 places on the Ease of Doing Business (EODB) Index. For abig economy like India this is a remarkable achievement in a single year. If the momentum is sustained the benefits to the Indian economy and to the world economy at large will be substantial over the next few years.
However, much more needs to be done to improve the climate further. Startups work at a fast clip and the environment needs to support that speed. In India it takes 29 days to start a business; it takes half a day in New Zealand! When it comes to bankruptcy, the complete filing process takes approximately 4.3 years in India as compared to only 0.8 years in Singapore. In terms of payment of taxes, India ranks a low 157 owing to a complicated tax structure and the number of declarations to be made every year by a business.
The world of startups would benefit greatly if single-window clearance tailored to the requirements for different sectors could be introduced. The problem in most cases is not the regulation but the red tape that makes compliance difficult despite best intentions. Many startups begin their journey in India but quickly move abroad as they are intimidated by the complexity of regulation in India. While Snapdeal has stood firm in its resolve to be domiciled in India, many of its compatriots have moved to friendlier climes. India needs more entrepreneurs and less policy.
Tax laws need to be updated taking cognisance of new business models ushered in by the startup boom. Modern startups have dynamic funds infusion, which may lead to change in shareholding pattern. This should not preclude such companies from carrying forward losses, unless such change in shareholding is done to avoid or reduce tax liability. On a related note, many startups make huge upfront investments and incur losses in initial years as they scale up the business.
However, they are allowed to “carry forward & set-off” the business loss for only eight years, which may not be sufficient for absorption of the losses and could lead to sub-optimal business decisions. This could be increased to 12-15 years to allow flexibility in investment decisions. With the government’s sharp focus on EODB, there are many other promising proposals already on the table like a unique “Business ID” number, suggested by a Parliamentary panel. This ID would be mapped to all necessary information for a particular company and could act as the sole reference in all registration matters.
ROAD TO REDEMPTION
Another step in the right direction is the Insolvency and Bankruptcy Bill 2015, which has been introduced in the just concluded Parliament session to ease exits and wind up failing businesses. These measures, when coupled with liberalised labour laws and capital flows, will enable businesses to be more adaptable and agile.
Not only does India need a liberalised, transparent and predictable investment environment, it also needs to be relatively more attractive than other competing destinations. We still rank the lowest amongst BRICS countries. A 12-position jump is commendable, but we still have 129 countries ahead of us. India needs to put together a composite framework which makes it easy to start a business and conveniently find a place to establish.
India needs a decade or more of uninterrupted high GDP growth to significantly lift the standard of living of its masses. Capital flows to India are favourable and there is a huge domestic market eager to go up the consumption ladder. Startup entrepreneurs have big ambitions, inadequate capital and even lesser time.
I am confident that with the combined efforts of the government and industry, we will be able to tap the entrepreneurial energy that is abuzz in the country. How swiftly we act to tap this opportunity will determine India’s place in the new world economic order and the prospects of the coming generations.
(By Kunal Bahl, cofounder of Snapdeal)