article banner

Modi Offers $1.5 Billion Fund, Tax Breaks for India Startups

  • Officials vow to ease thicket of rules hampering new companies
  • SoftBank, Uber heads attend Modi entrepreneurship conference

India said it will set up a 100-billion-rupee ($1.5 billion) fund to encourage startup businesses and pledged to ease regulations for entrepreneurs, as Prime Minister Narendra Modi strives to create the jobs needed in a developing nation of 1.3 billion people.

Startups will get tax breaks such as income-tax exemptions for the first three years, quicker patent applications, a credit guarantee program and easier routes to wind up if they fail, Modi said at a government conference for entrepreneurs in New Delhi. The fund will be established over four years.

"The government should not interfere in startups," Modi said on Saturday to an audience that included billionaire Masayoshi Son, the founder of Japan’s SoftBank Group Corp., and Uber Technologies Inc. Chief Executive Officer Travis Kalanick. "India’s youth should be a job creator, not a seeker."

Asia’s No. 3 economy is in the midst of an Internet startup boom that’s lured billions of dollars and raised questions about whether valuations are becoming stretched. Much of the money is coming from foreign investors such as SoftBank. A lack of tax breaks has curbed the involvement of local investors.

Complex Rules

“About 70-80 percent of the funding is coming from overseas,” said Harish Visweswara, a partner at consultant Grant Thornton India LLP. The government needs to curb red tape and get rid of the numerous permits and licenses required to run a simple business, he said.

The administration’s objective is to reduce obstacles from complex rules, Finance Minister Arun Jaitley said at the conference.

"Our effort over the last few years has been to restrict the role of the state essentially as a facilitator," Jaitley said.

Son said in New Delhi that he’s pumped almost $2 billion into India in the past year, and that he’d likely scale up rather than cut back his investments if he were to reconsider his plans.

The country is at the beginning of a "big bang" and the 21st century belongs to it, he said, while adding challenges include slow Internet connections and the need for more wireless spectrum to be allotted to mobile-phone carriers.

Son’s Investments

SoftBank has invested in e-commerce provider and the ride-hailing service Ola Cabs in India, as well as the real-estate website and hotel-booking app Oyo Rooms. The company is also part of a planned $20 billion solar power venture.

The World Bank ranks India 130th out of 189 economies for ease of doing business, an improvement from earlier years but far from Modi’s goal of breaking into the world’s 50 top business-friendly destinations.

The nation is revising rules to make company registrations easier, Corporate Affairs Secretary Tapan Ray said at the conference. Revenue Secretary Hasmukh Adhia signaled the budget due Feb. 29 may tackle the difference between the capital-gains tax treatment of unlisted investments and the more favorable regime for listed securities.

The premier is trying to boost Indian expansion beyond the current clip of more than 7 percent that’s the fastest among major economies. His agenda has faced some setbacks. For instance, a national goods and services tax that would try to make India more of a single market is stalled.

“Startups will play an important role in India’s growth," Modi said in his speech.