Innovation remains the weak link in growth of Indian start-ups

What was for Indians seeking greener pastures in the US a dream come true is fast shaping into a nightmare for many under the Donald Trump administration. With a further tightening of visas under the H1B programme, as of now, many Indians are groping—bewildered and clueless.

The highly-skilled are still looking to the US but many, tired of the prolonged uncertainty over their status are looking towards Canada, Australia, and locations in Europe. Some are returning to India, but unlike the outlook for start-ups being seemingly good until recently, there is an element of despondency that has crept in slowly but surely.

When mid-way through his first term in office, Prime Minister Narendra Modi dangled some carrots for start-ups, there was expectation that a new era was dawning for them. The dream has, however, soured and failure to generate new employment opportunities has been the most glaring of the Modi dispensation’s failures.

As part of the Startup India Action Plan, the Indian government had set up a fund with a total corpus of Rs 10,000 crore ($1.6 billion) to support these companies over the next four years. This money is disbursed via the Small Industries Development Bank of India (SIDBI).

Yet, almost half-way into plan tenure, just over 10 per cent of the total fund has been released. As on Dec 18, 2017, Rs 605.7 crore had been committed by SIDBI and Rs 90.62 crore disbursed to 17 alternative investment funds (AIFs), who in turn have invested Rs 337.02 crore in 75 startups,” C R Chaudhary, minister of state for commerce and industry, stated in a written response to a question in the Lok Sabha on Dec 18.

The most common reason for failure has been lack of innovation with 77 per cent of venture capitalists surveyed recently believing that Indian start-ups lack new technologies or unique business models. On the other hand, China, with which India often compares itself, built its own Google named Baidu and the local giant Alibaba displaced Amazon.

The cold reality is that, as quoted in Forbes Asia, India filed 1,432 international patents in 2015-16 as against 44,234 filed by Japan, 29,846 by China and 14,626 by South Korea. These figures reflect a considerably greater innovative spirit in these countries as compared to India. This country, which was once an epitome of innovation and ingenuity before the subservience to the British destroyed the prevailing spirit, is today woefully short on innovation.

In 2016, a survey conducted by the Information Technology and Innovation Foundation (ITIF), a US-based think tank, ranked India near the bottom of a list of 56 countries on global innovation. The ITIF study revealed that the country’s poor performance in developing human capital was mainly because of its failure in investing in education. The IBM report cited another study that said as many as 80 per cent engineering graduates in India were “unemployable.”

Yes, many ethnic Indians and expatriates hold important positions in the most successful of business ventures in the US and the per capita income of the Indian diaspora in that country is higher than that of any other ethnic groups. But, back home, the story is far from reassuring.

A part of the reason why the innovative spirit of Indians blossoms abroad but not in India is that start-ups in India generally copy the successful models abroad with varying degrees of success and are risk-averse under Indian conditions.

The Modi government paid only lip service to incentivising start-ups. The red tape and painful shackles of bureaucracy may have been eased to some extent at the Central governmental level under liberalisation, but at the State level, the plethora of restrictive practices continued unabated.

Getting basic sanctions for water, electricity and for environmental clearances continues to be bogged down by a corrupt, non-performing bureaucracy, which acts as a roadblock especially in states. The American tightening of visa requirement and procedures for work permits will cleverly not affect the highly-skilled Indian techies who will still flock to the US. It is the non-creamy layer that will find it a bigger challenge to find work in that country.

It is true that the Modi government has got the basics right. Initiatives such as Make in India, the Startup India programme, the establishment of the Ministry for Skill Development and Entrepreneurship, the Intellectual Property Facilitation Centres and other incubation programmes have spurred growth, but it’s no secret that innovation remains the weak link.

The business sector’s investment in R & D is far too low because the typical Indian businessman is looking at quick profits. There is a virtual obsession with getting rich quick. The government has to give direction but the drive and thrust has to come from the business sector. It is time we shed the over-dependence on governments for everything. At the same time, the government cannot abdicate its role as a catalyst.

The US government’s measures for making immigration tougher for all except the highly skilled ones should indeed spur us on to utilise the reservoir of talent in the domestic sphere. The challenge at hand is both to the Central and state government and the business sector to make it worthwhile for innovative minds to get a free hand with liberal incentives to blossom.

The Indian bureaucracy must reform or be trimmed. We cannot allow it to stunt the growth of innovation and innovative practices.

The time to act is now.

Kamlendra Kanwar is a political commentator and columnist. He has authored four books.

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