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Sunday, January 17, 2016

Startup Policy of Govt. of India will be disastrous for IT sector

Amidst media hype and fanfare, the Governemnt of India has announced its new policy to policy to support the start-ups in the country. There is proposal for tax holiday, 10,000-crore fund, Rs 500-crore per year credit guarantee mechanism. Wow! When it is taxpayers money, it is surely easy for those in power to be profligate.

You can bet that all this money that the government has sanctioned in the name of supporting start-ups will be poured down the same governmental Black Hole, from which no ray of light ever emerges. The IT sector will be in a worse state after this new policy, because with rise in government’s meddling with the sector we can expect a new wave of crony-capitalism, red-tape, inefficiency and corruption.

The Indian government has zero understanding of the IT industry or the start-up culture. They don’t have the power, competence, or the intellect to decide what start-up is worth supporting and what is not. They will end up pouring taxpayer money into the pockets of worthless crony capitalists. Those with connections with the government will progress and the real entrepreneurs will suffer.

This policy will result in further increase in size of bureaucracy (after all, you need people to manage the disbursement of the money and other freebies), and there will be scope for lot of corruption.

Does the government and their cheer leaders in the media understand the definition of a start-up? Obviously, they don’t. The start-ups are business entities which succeed by creating sudden disruptions in the market. Apple, Microsoft, Google, Uber, Facebook, WhatsApp, did not have a smooth rise to the top. They were major disruptors  of the market, they thrived by creating new products, new services, new ways of conducting business and new ways of life.

A start-up is a business entity that is founded by people who are TOTALLY unconnected with the establishment (political or business related). The founders of start-ups are always the arrivistes, they don’t have any legacy issues, they have hardly any connections with the political establishment or the business leaders—as they have no stake in the old traditional system, they are free to come up with new ideas for providing better products and services to the consumers at much lower costs.

The new start-up policy will make it difficult for the real entrepreneurs to start their business—because they will be muscled out by the crony capitalists who are being backed by taxpayers money. The policy will lead to further politicisation of the IT industry and there will rise in the number of crony-capitalists, whose talent lies in cornering government grants instead of creating innovative products and services through cutting edge IT.

If the government wants new start-ups to rise and grow in the country, it must stop trying to micromanage the economy, it must free up the economy. The ministers and the bureaucrats have to stop meddling. Taxes have to be reduced for every business, whether big or small, and for every individual. The government must shed some fat, reduce its size. 

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