Can India Build Its Own Silicon Valley?

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Following up his “Make in India” clarion call last year, India’s Prime Minister Narendra Modi, in his Independence Day address this year, called upon the country’s youth to “Start Up India.” The idea was to spur an entrepreneurial revolution in India, aimed at creating jobs and innovation.

This might not seem like the right time for such a slogan. China’s currency devaluation and consequent stock market slide last month sent jitters across the global economy. The Indian rupee lost around 4 percent of its value and GDP growth estimates have been trimmed. But if India wants to build its own Silicon Valley, now is probably the right time. It has the population for it, with two-thirds of its people within the working-age bracket and producing a whopping 1.5 million engineering graduates annually. And with China’s economy slowing, much of the world’s hope for future economic growth now rests on countries like India. Per capita income is still at only $1600, compared to China’s $7600, leaving India with substantial room to grow further.

Since coming to power, Modi has introduced a number of reforms to further this cause, including a financial inclusion scheme aimed at mobilizing rural savings for entrepreneurial investment. Last month, the Reserve Bank of India (RBI) approved the establishment of 11 payment banks as another step forward.

There has even been movement in intellectual property rights (IPRs) – an issue on which India has often drawn flak from the West. Patent laws have been adjusted in accordance with the Trade-Related Aspects of Intellectual Property Rights (TRIPS) Agreement, and trademark and copyright laws have been amended to accommodate India’s commitments in the WTO.

Still, much more reform is needed if India is to develop a start-up culture of its own. Despite the positive legislative moves, the U.S. Chamber of Commerce’s Global Intellectual Property Center ranked India 29th out of 30 countries in its International IP Index 2015, above only Thailand. Businesses still complain about India’s quagmire of labor laws – 44 at the national level and 150 in the states – which, they say, are costly, time-consuming, and altogether discouraging for start-up entrepreneurs.

Another major challenge is funding itself. In a 2013 essay, Kiran Mazumdar Shaw, head of India’s top biotech company Biocon, lamented the lack of a venture funding ecosystem in India for innovative new startup ideas. Shashi Tharoor, then the minister of State for Human Resources Development, acknowledged as much, saying that India still spends just 1 percent of its GDP on research and development. As much as 80 percent of that money, he said, comes from the government. In most OECD countries, by contrast, about 75 percent of their research funds come from the private sector. Unlike in the West, collaboration between universities and corporate enterprises is still minimal in India, creating a gap between institutions capable of research and startup companies that desperately need it. Today, India puts out less than 3 percent of the world’s research – and little of that is translated into commercial ventures.

To be fair, many of these challenges have been met at different levels by the Modi government. Earlier this year, Modi launched the Micro Units Development and Refinance Agency (MUDRA) Bank in order to furnish funds for micro, small and medium enterprises. Then there was the attempt at loosening labor laws: A proposed amendment makes it easier for firms with as many as 300 workers to fire employees without government approval, raising the cap from 100.

But many other measures have met with strong opposition, both within and outside parliament. Millions of workers went on strike this week, protesting against the proposed labor reforms. The Goods and Services Tax (GST) bill, which will facilitate the movement of goods and services across states, is still stuck in parliament, as are the proposed amendments to the land acquisition law which will make it easier for investors to buy farmland. (Modi had issued as many as three executive orders on the land law before deciding to allow it lapse recently.)

Despite the myriad challenges, India still has the population and economy to kickstart a startup revolution. What it needs is the delivery of a long list of reforms that will turn its traders into businessmen and graduates into entrepreneurs. That’s on Modi.

Mohamed Zeeshan is a policy analyst based in Bangalore, India and a contributor to The Huffington Post and Swarajya.

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