Concepts such as incubation, early stage start-ups and others are at a nascent stage in India and mostly confined to urban areas and much can be done to strengthen their scale, scope and efficiency, said a report of the expert committee on Innovation and Entrepreneurship.
The committee, headed by noted academician Tarun Khanna, comprises eminent persons from India Inc and experts. It was constituted under the NITI Aayog.
In the report, which was made public a few days ago, the panel said a survey commissioned by it showed that approximately 50 per cent of respondents feel the need to improve formal networking within their sector through associations, and to enhance their ability to work cooperatively with the government.
"Approximately 60 per cent of the respondents stated that access to global markets needed to be strengthened - another area where incubators can help. Surveys also highlight that widespread investment, rather than focused investment in urban areas, is needed to trigger entrepreneurship," the report showed. It said Indian incubators have tended to operate as silos.
"Though they are housed within universities in some instances, none of them build on meaningful links with the research climate in the universities, neither really benefiting from the research, nor contributing to it," the report said. It added the incentive structure, long used world over to drive innovation needs to be encored.
"Grand Challenges, for instance, have a long history, dating all the way back to the 1700s, when the British Crown announced a " Grand Prize" for finding a way to measure longitude. In recent times, Grand Challenges have been on the rise after the Ansari X-Prize, which called for innovation in spaceflight, was introduced in the US in 1996. In 2014, the British government announced Grand Challenges-to promote innovation in science and technology. In the US, through the challenge.gov platform, the federal government has run over 400 competitions through 75 agencies," the report said.
The report said access to patient capital was another critical ingredient for start-up success and is lacking in India.
"In India, entrepreneurs struggle to obtain funding. Entrepreneurs spend an average of four-to-five times more effort raising funds as their American counterparts," the report said. It said access to funds is even more constrained for the economically deprived and for women.
"In a survey conducted on economically backward youth, 97 per cent of respondents stated that access to capital was a barrier to entrepreneurship. In 2012, female entrepreneurs had access to only 27 per cent of needed debt capital from formal lenders, versus a 70 per cent corresponding figure for male entrepreneurs," the report said.
Another issue, as per the experts in promoting a culture of innovation has been the lack of funding available at the seed funding and angel stage.
"Angel investments in India comprise only seven per cent of early-stage investing as compared to 75 per cent in the US. Venture capitalists in India tend to prefer later-stage type funding i.e. companies that are already generating revenues, which would ideally attract PE investments," the report said.
It also said they prefer to make large investments in a handful of companies, in the range of Rs three crore to Rs five crore.
"Consequently, smaller start-ups, that need funding in the range of Rs 25 lakh to Rs 50 lakh, are often overlooked," it added. One key reason for inadequate PE/VC investment is tough regulatory restrictions on domestic investors.
Consequently, the industry as a whole is heavily funded by foreign capital. While foreign VC investors have no specific tax exemption, many investors avail the benefits of the double taxation avoidance agreement, which India has with several countries.
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