Narendra Modi has a peculiar penchant for fustian bluster. He said Indian start-ups of today would become the multinationals of tomorrow. Sloganeering is glib; it is much harder to deliver on a gilded dream. Start-ups have had a pretty messy ride in India because the government has not been able to create a nurturing ecosystem. The biggest challenge for a start-up is the compulsion to raise funds to scale up operations as young investors slog through the Sisyphean task of meeting exacting milestones to bag investors. This creates enormous pressure on young managements, which tend to work within a collegial atmosphere of brainstorming and camaraderie, to focus on outcomes and valuations. The fear of failure and the frustration of grappling with whimsical policy pronouncements and taxation issues continue to snuff out dreams of creating India’s response to a Facebook or an Amazon.

Venture Intelligence, the research and analysis firm that tracks developments in the start-up space closely, estimates that India has 36 Unicorns at present. Unicorns are start-ups that have achieved a valuation of over $1 billion, determined by multiple rounds of funding. Flipkart — acquired by Walmart — stands at top of the heap with a valuation of $21 billion. It has still some way to go before it becomes a multinational. There can also be quibbles over whether it has retained its ‘Indian’ character after the exit of its original founders, raising questions about India’s ability to throw up its own Mark Zuckerberg or Jeff Bezos who can battle through challenges and retain control to ensure the firm hews close to its original vision. Funding for start-ups comes mainly from investors in the United States of America and China. The pandemic and the frosty relations with Beijing mean that there is no clarity over whether start-ups will continue to be able to source funds from Chinese investors. Last September, the parliamentary standing committee on finance published a report that made suggestions on how to reduce dependence on overseas capital by creating a pool of funds that could be funnelled to Indian start-ups. The Centre has not made things easy for start-ups with its tax policies. The parliamentary committee report said that the government should abolish the long-term capital gains tax on investments in start-ups for two years, after which a securities transaction tax could be imposed based on fair market valuation in the case of collective investment vehicles that route money into start-ups.

Many start-up founders have been dismayed by India’s tax and bureaucratic hurdles and considered ‘flipping’ their corporate structures by creating holding companies in benign regulatory regimes like Singapore and the Netherlands. Several have transferred their intellectual property — the precious asset at the heart of any start-up — to these holding companies. Bureaucratic nitpicking over transfer pricing guidelines and the fierce determination to tax any transaction involving shares and IP wreck the environment, fanning the exodus.