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Wednesday, December 01, 2021

New Year Postcard: State’s start-ups can make India stand up

To enable this, the state needs to support start-ups by providing the right policy environment. Take for instance industry-supported research at our universities — which is critical to success.

Written by Reapan Tikoo | Mumbai |
Updated: January 8, 2016 5:03:07 pm

Maharashtra can be positioned to be the hub of a start-up ecosystem if the right impetus is provided. This state has everything that is needed to leapfrog and emerge as the leading state in promoting successful start-ups, especially high-technology, research-based start-ups.

To enable this, the state needs to support start-ups by providing the right policy environment. Take for instance industry-supported research at our universities — which is critical to success. Research happens when there is education and training in that domain. Today, our education has been virtually reduced to a certification industry; we are delivering human resources with no imagination, no problem-solving capability and with no skills or training.

That’s why we need to set up a Centre of Excellence (CoE) in different domains, which will start from training-cum-skills and graduate to domain-specific start-up incubators, at our state universities and academic institutes.

We also need to make a few distinctions. Intellectual Property-generating start-ups, also called R&D start-ups, are different from business process innovation start-ups that make the buyer and seller meet or help the buyer make informed choices. R&D start-ups bring disruptive technologies to the market, which are then licensed to manufacturers — for instance drug molecule, processor designs, engine designs, better-yield seeds for agriculture and switches. These start-ups are non-service and non-manufacturing and help give impetus to manufacturing and services. Maharashtra, in particular, and India, generally, has very few start-ups selling technology research. A domain expert is mostly the founder, i.e. they have strong technology expertise and work in niche areas.

Building a sustainable start-up based on technology research is one of the most difficult businesses in the world. The chances of failure are high; the first field trials of product can fail and iterative incorporation of improvement till it succeeds can be time and fund consuming. And by the time the start-up gets it right, the opportunity may have vanished.

This is the reason why India and mainly Maharashtra doesn’t produce R&D-based start-ups. India, including Maharashtra, remains a market and cheap labour destination in the absence of our own industrial research capability. None of our chronic problems will be solved by outsiders, more so for our strategic sector. We assume that job creation, cost-effective price in our own country for the same class of products, reduction of imports, enabling higher education and building our state’s and, thus, nation’s capability is understood.

So to keep time as a parameter for such companies to qualify as a start-up won’t be correct. The best way to judge it will be on turnover. Once a start-up crosses the Rs 100-crore turnover mark, the R&D company should no longer be called a start-up and the sops offered by the government should be withdrawn. It is the Department of Scientific & Industrial Research that qualifies and certifies a company to be a pure research-based start-up.

R&D start-ups have no political clout and no lobbying capability, which calls for deep pockets. Yet, these are the entities that will improve the quality of human lives by offering technology solutions to problems that the human race encounters and also by paying taxes that they will generate when they become sustainable.

What would also help a lot is lower interaction by regulatory bodies such as sales tax and the Income Tax department with start-ups-cum-R&D entities till they are sustainable. Those who start such entities are domain experts, usually PhDs from top global universities with field experience but who have a poor sense of business as well as ability in dealing with state regulatory bodies and its front-end officials, which takes away their focus from core work. The way out could be by offering a window for this and bringing these start-ups into the tax and regulatory net after they become sustainable as by that time they can afford to hire talent to manage their enterprises.

Since income tax is a central subject, may I suggest that you should reach out to the Union finance minister to re-introduce Section 80-IB (8A) of the IT Act, which provides tax break to start-ups for a certain window period during which they become sustainable. This has already been recommended by the Department of Scientific & Industrial Research to the finance ministry. NITI Ayog as well as industry bodies such as the Confederation of India Industry are also in agreement with this.

What would make a huge difference would be the following: (a) VAT/Octroi waiver for buying from and selling to a start-up till they cross Rs 100-crore turnover in the upcoming state budget; (b) Centres of Excellence at universities for skills, research and entrepreneurship incubators should be provided funds in the state budget and (c) Reintroduction of Section 80-IB (8A) of the IT Act in the coming Union Budget. If these are offered to entrepreneurs of our state, Maharashtra’s start-ups will make India stand up in the world.

Reapan Tikoo is a technology entrepreneur & Chief Executive, Powai Labs

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