Can changing the definition of startups boost innovation in India?
The Government has enlarged the definition of a start-up to a venture from present 5 years to 7 years, relaxed norms of tax benefits and included employment generation potential to give a big push to job creation and entrepreneurship. In the biotech industry, the period will now be 10 years. The definition scope has broadened to include saleability of business models with the potential of employment generation or wealth creation.
It has further been clarified that it should be working towards innovation, development, or improvement of products, processes or services. Earlier, an entity was considered a start-up only if its activities were innovative and driven by technology or intellectual property.
Yes 1. Long Gestation Period The start-ups have a long gestation period and initially do not make profits. Hence raising the period by two more years is symbolic and will benefit more start-ups.
2. Encourage Entrepreneurs to Be More Innovative The move will also encourage entrepreneurs to be more innovative, as products and services have been included apart from technology, intellectual property rights. Widening of the scope will encourage innovation in products, services etc also.
3. Long Term View A long term view will be taken by venture capitalists in assessing potential of ventures, keeping in view the clarity of the tax benefits under the new definition.
4. Innovation Rewarded The enlargement of the definition to include different types of innovations extends to products and services that offer something new to the market. Innovation means doing things differently and proposing new solutions to old problems. In this context, the increase in the scope of the definition is vastly beneficial.
No 1. Reducing Manpower Linking employment generation or wealth creation may discourage innovative entrepreneurs as the innovations themselves are with the view to cut cost of operations by reducing manpower.
2. Assessing Revenue Potential Another problem is the assessment of revenue potential. The government may find it difficult to assess revenue potential as in initial years, revenues are only projected and not real.
3. Finding Initial Angel Investor or Funder The main problem is to find the initial angel investor before patenting. The Government of India has kept itself out of the process. It gets involved at the second or third stage of expansion only. The entrepreneur has to depend on private equity for initial investment.
Changes in definition may facilitate existing start-ups. But whether they will encourage innovation is the moot question. Tweaking the definition may not clear the way for new startups immediately, but other changes in obtaining recognition etc may prove to be good in the long run. Ultimately, the benefit of enlarging the definition should have value for fostering innovation in India, not just contributing tax benefits to existing companies. Innovation means the start of something novel and this enlargement of the definition can have a positive impact, only if the government commits more resources to the development of fledgling and nascent start-ups rather than bolstering existing ones alone.
