It has almost been three decades since the Indian economy underwent liberalisation and privatisation where it opened up markets and lessened trade barriers. Since then we have evolved into a $3 billion economy in 2019 and now envisioning to become a $5 trillion economy by 2025.The startups in India saw 108 percent growth in total funding from USD two billion in 2017 to USD 4.2 billion in the year 2019, according to the National Association of Software and Companies.A startup is an idea more than just being a new company. The originality of any idea is the real reason that gives it the name of a startup. But in India, most of the startup ideas are just imitation of existing business models. Ola copied Uber, flipkart imitated Amazon, Paytm from PayPal, Bigbazaar from Walmart and many more. They all sailed well and gave tough competition to each other in India but is it benefiting the economy as a whole ?
The major concern in all this is that India needs a solution for its basic problems and not just compete with foreign companies and their culture. Countries like America and United Kingdom already have those facilities or necessities which we are assisting the pursuance of luxuries. For example, booking a cab in India still involves pride among small town citizens while in America, cab is a general phenomenon.Since independence itself, India was being engaged into heavy industries like Iron & Steel. We definitely needed that but during that period, the major companies like PepsiCo and Coca Cola were growing. We too must have focused on our strengths which is primarily agriculture and today the picture could be different. Nevertheless, today also foreign funding for new startups are working not better than the East India Company during colonisation period. Currently, there are 30 unicorn companies in India which have huge turnover. According to an official data, 18 out of 30 unicorn companies of India have major share of FDIs (foreign direct investment).This scenario of foreign investments having major stakes in indian startups highlights the issues in economic policies that allow more control to foreign investors in Indian startups and the consumer markets of the country. For example, top Indian startups like Snapdeal, Flipkart, Ola, Zomato, Swiggy and Paytm have major foreign stakes which is not a good indication.
It doesn’t seem to matter at all in short run as Indian startups are getting well-funded but in medium & long-term, however, there is a significant and potentially serious negative impact on the Indian economy. According to a report published by Business Standard, an estimated Rs. 17 trillion of market capital has been transferred abroad after Indian startups shifted their company domicile overseas by foreign investors. Instead of taking India towards a developed economy, most of the startups are taking it down by acting as flippers! ‘Flipping’, where you take an Indian startup and transfer ownership of all its shares to an overseas company that has been usually freshly floated just for this purpose. So now that Indian company becomes 100 percent subsidiary of an overseas entity.The intellectual young generation thinks we need to become global in our approach & open to new ideas of innovation which is 100 percent correct.
But this is the biggest myth of Indians as customers that these big overseas giants are fair in their approach.All the IP(internet protocol) and data which includes information so much personal to us , captured by Indian entities in future will also belong to the overseas entity which takes them over. These overseas territories are substantially out of Indian jurisdiction and influence of Indian regulators. So in one way they enjoy the benefits of Indian companies in terms of tax exemptions but when it comes to Indian Company Laws they are out of it. Simply, they can do whatever they want. However according to new rules, Chinese companies can neither fund business in India not operate online and many Chinese apps are also banned completely but all this was done as a result of Indo-China border dispute and not because of the ‘ *data threat* ‘ which was prevailing much before this.
However, still we can save ourselves from huge damage by just doing a slight change in our foreign policies wherein an Indian company could be taken over by overseas company but all the data should strictly be retained with the Indian company & not allowed to be transferred outside. Just like the USA banned Huawei after China declared its National Intelligence Law wherein it was legal in China to ask for personal data of customers from China based companies.Now there arises a new question, that if everything does not happen that way and the overseas company denies to invest on such conditions then what? Will the Indian companies support these startups? The answer is ‘may be’ . The main reason why indian companies hesitate to invest in such non-traditional business models which are the core of majority of Indian startups because these startups have different model and they put more expenditure on marketing and human resources rather than on tangible assets. This asset class of venture capital investment in India is very new to be invested in. Also the startups today are more profit oriented and less likely aim to solve a problem with their ideas. There is much more to make profit in India than just online shopping and payments which can benefit the country in terms of welfare.
This is the time we need to support local and also make it our priority so that our businesses can come in line with international markets in near future. Just like UP’s Nimisha and Rajasthan’s Naveen who made E-cell with aloe-vera which not only manages waste and pollution caused by lithium batteries but also it’s helping local farmers and Indian economy as a whole because it is world’s first 100 percent eco-friendly and non-hazardous cell which is made at 10 percent lesser price and lasts 50 percent more and totally made in india. Has anyone thought that a small aloe-vera plant could have such great benefits? It just takes a little effort and brainly skills to come to such result. There are more such great ideas where the big indian companies will happily invest after all who does not like innovation mixed with profit?
However there are various campaigns and schemes launched by the government. be it the ‘Make in India’ campaign of 2014, ‘Startup India’ of 2016; or ‘Digital India’ of 2015, all have been aiming at encouraging entrepreneurial growth in India by tax exemptions, legal incentives and growth of Fintech companies by ensuring online connectivity to citizens in remote areas. It has however not been entirely successful in its implementation because India is obviously a big country with a huge population and limited resources which we usually forget while comparing India with the growth of other countries. And having that being said, we have to believe it the hard way that there will always exist some loopholes in the system but as a human and most importantly as an innovative entrepreneur we must find a way out of it to get our work done . Afterall the fruit is one & demands are many so it must be the best one who gets it.
Writer is a Student of Faculty of Commerce, BHU (Bcom(hons.) 2nd year) and a Member of Finance and Economics Think Council.