The startup ecosystem in India, in overdrive for the past few years, is now undergoing a slow churn. After a period of frenzied fund-raising and deal-making, when unicorns (startups with a valuation of $1 billion or more) were growing at a fast rate, fund-raising has begun to dry up. As per a report by PwC, after three consecutive quarters of more than $10 billion, funding in Indian startups fell by 40 per cent to $6.8 billion during April-June this year. This decline can be traced to a combination of factors — end of the era of cheap money with central banks across the world tightening policy to tackle inflation, fears of a global slowdown, and a decline in tech valuations as investors become more circumspect. During such testing times, when many startups have begun to lay off workers as they seek to conserve cash, Indian startups have also been voicing concerns over the “compliance intensive” nature of regulations in the current draft of the personal data protection Bill.
The concerns stem around regulations which mandate that users’ personal data be kept within India. Many fear that these rules will restrict operations of startups. While the justification for data localisation is fairly uncomplicated — regulation will address concerns over data privacy and security, and will make it easier for government to access critical information — worldwide, in the designing of localisation rules, a careful balance needs to be struck between privacy and innovation. However, the Indian government seems to be sympathetic to the concerns of startups — as reported in this paper, the Ministry of Electronics and IT is examining the possibility of easing the data localisation requirements as laid out in the current draft of the data protection bill for startups. Considering that such concerns have also been voiced by others in the past, especially by global technology firms, carving out exemptions for startups, even as what constitutes a startup, the terms of its definition, remains difficult to ascertain, may not be a prudent approach.
Policies as critical as data protection should not be tweaked to accommodate the business plans of a few startups, corporate strategies should not be drawn up solely on the basis of the ability to influence policy. Should similar exemptions be also carved out for startups whose applications to become payment aggregators have been rejected by the RBI? The startup ecosystem is vibrant, in part, because it allows for easy entry and exit of firms — some startups will succeed handsomely, while many others will fail. That’s the nature of business. Firms should compete without having to rely on government intervention.