Startups do well when there is little interference from the government.

Karnataka government wants to set up a Start up council will it do more harm than help
Blog Thursday, September 17, 2015 - 13:15

Bengaluru currently accounts for 55% of India’s start-ups. Quite a few entrepreneurs, armed just with ideas, have tapped into this environment and managed to attain a great deal of success in the city. Hoping to ride on this success, the Department of Commerce is proposing to set up a startup council that aims to make the environment in Bengaluru ‘more business friendly’. At the vanguard of this proposal is Karnataka Industries Minister RV Deshpande.

One of the proposed aims of the council is to create designated areas or incubation centres where start-ups can operate. The initiative has received praise from leading industrialists like Kiran Mazumdar Shaw of Biocon, who says that initiatives of this kind are required and that such plans have been absent because of the absence of dedicated Industries Ministers like Mr Deshpande. She also adds that one of the main things discussed was that start-ups in residential areas that cross a total of 15 employees should be moved out of residential areas.

Such a regulation however is not very encouraging. The government has been cracking down on start-ups in residential areas, suggesting that the operation of a start-up in such an area is an inconvenience to the residents of said area.

While a council that aims to increase access to funding and providing office space sounds great in theory, entrepreneurs remain sceptical about the propositions.

“Who will be the members of the council? There’s no clarity about the dedicated set of officials. If the council aims to get rid of laws that create problems for start-ups like professional tax and the labour laws in the country, then it might be helpful, but usually state involvement is not very positive as in the case of Uber and Ola” said Kiran Jonnalgadda, founder of HasGeek in Bengaluru

Incubators to the neutral observer seem like a good idea as it provides start-ups with office space and may even lead to the distribution of start-ups across states. Furthermore with increased space, the current crisis that several start-ups are facing with respect to layoffs could be improved with more office space and capital.

Kiran begs to differ, “Every successful start-up has grown organically in the space they originally existed to branching out later, one can’t nurture star-ups by kicking them out of their space, they have to be left alone. Such a council would also heavily restrict the ability to work from home, a feature that many people who work for start-ups consider an attractive option.”

“I don’t think Kiran Mazumdhar Shaw knows what it’s like to be a start up for at least 20 years now. While she has helped several start-ups with initial capital, I am not sure that she’s aware of what restrictions could do to a company that operates on a small scale,” he adds.

A council could also lead to the imposition of additional licensing that several entrepreneurs believe would be time consuming and restrictive. As far as facilitating competition is concerned, according to Kiran, “There’s simply no guarantee of that kind, such a council could just as well impose great restrictions as interference often exists to serve larger business interests. These incubators could also be places where start-ups are bought out by larger ventures. This makes the space less competitive and more oligarchic.”

Going by what the government has done in the case of Uber and Ola, it is likely that government regulations could cramp the growth of start-ups.

In his post for Forbes, Josh Steimle sums up what entrepreneurs really want from the government: fewer financial incentives, fewer employment regulations, fewer taxes, fewer banking regulations and no crony capitalism. The government must instead focus on that.

While the details about the proposed council remain unclear, it is important to keep in mind that a council of this kind or a statutory body that deals specifically with start-ups is a concept that could imply restriction and interference.