'Complicated tax rules hindering startups' growth'

The Indian startup ecosystem has emerged as the third largest in the world with its eclectic spread in the tech domain. In a chat with N V Vijayakumar and Mamta Bhardwaj of DH, Nasscom President R Chandrasekhar says the Indian startup ecosystem is maturing and making an impact. Edited excerpts:

How far has the  Indian startup ecosystem traversed?

India has emerged as the third largest startup ecosystem in the world with a focus on domain solutions for verticals like healthcare, agriculture, and education. Nasscom will continue its drive towards catalysing deep tech start-ups, build category leaders and support startups to create for India.

The Zinnov-Nasscom report on 'Indian Start-up Ecosystem – Traversing the maturity cycle'   states that India added over 1,000 startups this year and registered an overall growth of 7%.

It has now achieved a maturity cycle over a period of time. The total number of technology startups reached 5,200 during the current year, and India is facing intense competition from countries like the UK and Israel. Bengaluru, Delhi and Mumbai retained their position as the key startup hubs in India. But the interesting thing to note here is that about 20% of the startups emerged from Tier-II and Tier-III cities this year.

What are the major shifts in its growth trajectory?

Indian startups have become more business to business (B2B) than the earlier trend of business to consumer (B2C). With 40% of startups in the B2B segment, the share of B2Bs in the overall tech startup funding is over 30%. There is a rapid rise in the B2B startups focused on verticals like health-tech, fin-tech, ecommerce and aggregators. Here we should understand that growth of B2B startups being driven the rising focus on advanced technologies such as Analytics, AI, IoT, AR/VR, Blockchain, among others. 26% of B2B funding ($145 million) is pouring into enterprise and SMB-focused horizontal solutions and 90% of them are software as a service (SaaS) companies.

Is the mortality rate of Indian startups worrisome?

Indian startup mortality rate is 35% this year as per the Zinnov-Nasscom report and this statistics is applicable to 2017 only. This number is very low compared with global startup mortality rate of 80% to 90%. This shows Indian startup ecosystem has achieved maturity over a period of time.

What are the major impediments in its growth?

I would say complicated tax rules are hindering the growth of startups and this is visible in the muted growth of seed funding from angel companies and early state funding companies. The recent development in regulation has made entrepreneurs focusing more on tax guys than doing their work.  Investment in startups is taxed like income. Also, the regulation is being misused for money laundering, corruption and bribery. It is high time that the government fixes these loopholes and prevent misuse of law which is hindering the growth of our startup ecosystem. I would say Indian companies should have the same ease as companies abroad. You should understand that in various other parts of the world companies can be formed in a day and can even be started remotely. It should happen in India too.  

There is a dip in angel stage funding. How do you view it?

The early stage funding is up by 83% and the growth stage start-up (funding) is up by 23%. It is the only angel stage funding that is down by 53%. We should understand that startups are the seeds of the future. If we don't have those seeds then the future is jeopardised. This is the reason we believed that this is an important issue we need to flag. It was an urgent issue, which has now become critical.

How  is the Indian startup ecosystem associating with other matured ecosystems?

Indian startup ecosystem, if get associated with other global ecosystems like Silicon Valley, Israel, the UK and Beijing it will give a holistic opportunity to understand and grow. Nasscom has mooted development of a startup triangle linking Bengaluru, Israel and Silicon Valley in the US. This triangle will help the startups in Bengaluru to interface with global technology hubs in Israel and Silicon Valley and access the latest technology, funds and government assistance. We have proposed this idea to the central government and discussed with Prime Minister Narendra Modi during his visit to Israel in July this year. There needs to be more work done in this direction to realise this triangular cooperation. Besides solving local problems, Indian companies can focus on products that a global implications. Our frugal innovation and their ecosystem will help make the difference.

How do you view role of the startups in new-age technologies?

We should focus on new age technologies. If not, we will lose out and we will have to repeat the history of depending on them for everything. If we focus on these niche areas like AI, cybersecurity and drones there will be lot more opportunities for revenue and job opportunities. We have started the centre of excellence for enhancing technologies in these domains. Also, we have to frame policies so that startups will get a boost to work on these newer areas.