India’s politicians have a new obsession: Startups

Quartz india
Quartz india

In his Independence Day speech from the ramparts of New Delhi’s Red Fort on Aug. 15, prime minister Narendra Modi introduced a new slogan: “Startup India, stand up India.”

It was perhaps the first time that an Indian prime minister spoke of the country’s fledgling startup sector on such a big national stage. Naturally, it gave India’s startup ecosystem and entrepreneurs a newfound sense of importance—and that sentiment continues to be bolstered by an unlikely constituency: India’s politicians.

On Nov. 5, the newly formed state of Telangana launched India’s largest startup incubator—a co-working space that offers infrastructure to entrepreneurs at nominal rates.

The incubator, named T-Hub, will come up in Hyderabad and is a “unique public-private partnership” between the state’s government, three of the country’s top educational institutes, and the private sector.

“We are saying walk in with an idea and walk out with a product,” Telangana’s IT minister KT Rama Rao told the NDTV news channel. “There are world-class facilities but we are offering something priceless and that is mentorship.”

India’s youngest state isn’t the only one trying to woo entrepreneurs. In 2012, the southern Indian state of Kerala had set up the country’s first incubator—the Startup Village—on a public-private partnership.

“Political climate vis-a-vis startups has improved. States are now competing to develop startup policies,” Sharad Sharma, co-founder of software industry think tank iSPIRT, told Quartz. “The Rajasthan government has announced a new policy. Karnataka, West Bengal and Uttar Pradesh are also working on it.”

The opportunity

But what’s behind this new love for startups in India?

“The opportunity is massive,” Ravi Gururaj, chairman of the software services industry body Nasscom’s product council, explained. “It is not about what Indian startups can do for the world anymore, it is about what they can do for India. That is also why, you see more politicians becoming sensitive to the startup industry and paying attention. But they should also remember well that startups don’t create jobs immediately and the interest needs to be sustained.”

Asia’s third largest economy now has between 4,200 and 4,400 startups, 110 incubators, 292 active angel investors and 156 active venture capital and private equity investors, according to Nasscom (pdf).

Between three and four new technology startups are set up in India every day. And, as many as 250,000 jobs are expected to be created by startups by 2020.

“Politicians are realising that startups do bring jobs and they also assist the government on a number of social impact projects,” Srivatsa Krishna, the secretary for e-governance in the Karnataka government, told Quartz.

Money has followed this expansion. So far this year, India—the world’s third largest base for technology startups—has attracted $5 billion in funding, 125% more what flowed in 2014, according to Nasscom.

“What politicians also understand is that helping startups isn’t exactly vote bank politics. This is about real development and it’s good that more and more politicians are coming forward to help the startup sector,” Gururaj added.

Ground reality

Despite all the announcements that the government has been making, action on the ground level has remained slow.

India’s regulatory framework for startups is far from ideal, with many entrepreneurs choosing to shift their base overseas to countries such as Singapore.

Even with the government launching schemes with much fanfare, not much is known about how and when they will be implemented.

In the Modi government’s first budget last year, finance minister Arun Jaitley announced a Rs10,000 crore ($1.51 billion) fund for India’s startup ecosystem. This was seen as a landmark decision for supporting entrepreneurs. However, the government did not share any further details about the fund for several months, leaving startup industry players in the limbo. Eventually, in April 2015, the fund was launched through the Small Industries Development Bank of India (SIDBI).

Even the Securities and Exchange Board of India (SEBI) has eased some norms for listing early-stage companies on local bourses. But strict promoter holding rules and uncertainty over the valuations that young startups may be able to attract have kept entrepreneurs away from the National Stock Exchange and the BSE.

“They (the government) are directionally correct,” iSPIRT’s Sharma explained, but “the pace of implementation has to be speeded up.”

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