Indian entrepreneurs, start-ups await growth revival

By Fakir Balaji

Bengaluru, Aug 19 (IANS) Hit by the decline in economic growth, hundreds of entrepreneurs and start-ups in the manufacturing and services sectors are looking towards the central government with the hope that it will act to reboot the economy.

Industry experts say the government will have to ensure stepped up spending, particularly in sectors like infrastructure, education, healthcare and connectivity, to revive the growth.

"As the custodian of the country, the government has to initiate measures to revive the economy and spur growth. If it responds to the needs of the manufacturing and services sectors that account for over 80 per cent of the country's GDP (Gross Domestic Product), it will change the sentiment for good and mood for spending," industry analyst S. Vishwanathan told IANS here.

He said sudden demonetisation in November 2016 and introduction of the Goods and Services Tax (GST) regime from July 2017 had a cascading effect on the economy by denting investments, spending, fund-raising and job creation.

Growth got derailed because the shadow or parallel economy that was fuelling the GDP growth rate over the years was nipped, resulting in elimination of black or unaccounted money and prevention of tax evasion by the dodgers, Vishwanathan said.

"The government has to focus more on the economy to fix the problems holding back growth, spending, investments, savings and job creation than doling out freebies," Vishwnathan added.

"Though the government may claim that the economic fundamentals are strong and over a billion people spend for their livelihood, education, healthcare and travel, unemployment, rural distress, negative sentiment, lack of capital and fear of being caught by the authorities (tax terrorism) is preventing faster growth that will create market for entrepreneurs and start-ups to consolidate and grow," said Vishwanathan.

Though state-run enterprises and India Inc sustain the average or the Hindu growth rate, they do not drive the economy on the fast lane as other segments, including retail, consumer goods, hospitality, housing, healthcare, travel, tourism and entertainment do at the bottom of the pyramid, despite many of them being in the unorganised sector.

While the manufacturing sector, including small and medium enterprises (SMEs) maintained steady growth over the past four years, however, linear, the services sector performed better as, major part of it, like software, is export-oriented and dependent on overseas markets.

"Entrepreneurship grew well during the first term of the NDA government when hundreds of start-ups in the services sector sprung up to innovate and create a plethora of software and hardware products and services for the old and new economy," city-based serial entrepreneur Ravi Gururaj told IANS.

As start-ups in the services space is a sunrise industry, riding on disruptive technologies, Gururaj said their role and contribution to growth is small or incremental, as they are like cogs in the giant machine, though smart, lean-and-mean and productive.

"Structural reforms, major policy initiatives, incentives and flagship programmes like 'Start-up India', 'Stand-up India', 'Make in India' and 'Digital India' have spawned hundreds of start-ups and in building an ecosystem for their growth and integration with the brick and mortar industry across the country," said Gururaj, founder Chief Executive of QikPod, a start-up in the e-logistics space.

If policy paralysis, scams and lack of investment in the second-half of the UPA-2 regime decelerated the GDP growth rate, the NDA-1 government's efforts on ease of doing business and providing conducive climate for investments in the twin sectors led to the emergence of 30 unicorns in the start-up space from 2 five years ago in 2014.

"As the start-ups base is small compared to other sectors in manufacturing or services, their double-digit growth has generated hundreds of jobs, products, technologies, services, markets and returns. But as a derivative industry, they are equally dependent on the economy doing well to benefit them as well," asserted Gururaj.

As a member of the IT industry's apex body (Nasscom) executive product council, Gururaj hoped higher growth would be back soon if the government gets its act together.

"With a huge mandate and a stable government in place after the recent general elections, the government is well-placed to boost the economy by spending more on infrastructure projects, education, healthcare, research and connectivity and filling up thousands of vacancies in its various departments," added Gururaj.

The government's recent decision to exempt the start-up community from angel tax scrutiny if requisite declarations were made has given relief to promoters and entrepreneurs, as they will be able to raise funds from angel investors and venture capitalists, without the fear of being haunted or hounded by the tax sleuths.

"Finance Minister Nirmala Sitharaman's announcement in the Union Budget for fiscal 2019-20 on July 5 and the Central Board of Direct Taxes (CBDT) clarification through a circular last week on exempting us from tax scrutiny is a breather for our fledgling industry, as the prospects of raising angel funds will be brighter without the fear of being taxed on premium or revised value of the investment made in a start-up," said an entrepreneur on anonymity.

"The issue of establishing identity of the investor and source of his funds will be resolved by putting in place a mechanism of e-verification. With this, funds raised by start-ups will not require scrutiny from the Income Tax Department," said Sitharaman while presenting her maiden Budget.

Introduced in 2012 by the then United Progressive Alliance (UPA) government, angel tax was flayed by the start-ups community as some of them were served notices for non-payment of dues.

Start-ups are taking root and their growth needs to be encouraged by not subjecting them to quizzing on valuations of share premiums.

As part of the government's commitment to the growth of start-ups, the CBDT also clarified that their pending assessments would be made by the department.

Till now, start-ups were not required to justify fair market value of their shares issued to certain investors including Category-I Alternative Investment Funds (AIF).

On the downturn in the $100-billion automobile industry, resulting in loss of a whopping 3-lakh jobs and slump in July sales, a Society of Indian Automobile Manufacturers' (SIAM) member said the alarming numbers indicated that the slowdown was not cyclical but secular, impacting the economy, as the sector employs nearly 370 lakh people directly and indirectly and contributes 12 per cent to the national GDP.

"The July data on production and sales is alarming, as it shows the auto sector is in the reverse gear due to various factors. We are waiting for the government to initiate measures that will check this downtrend and revive the industry ahead of the festival season," the member added.