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Only the startups with customers’ money will survive – founder

19 May 2020

Only the startups with customers’ money will survive – founder

Actual ease of doing business will get investment, not the ranking – IndiaMart Founder

19 May 2020, New Delhi

Startups with high cost structure and focus on GMV alone will struggle in the post-lockdown India, says Sanjeev Bikhchandani, Co-Founder and Executive Vice Chairman, InfoEdge. “The days of growth GMV and valuation are over. Now, if you have revenues, margins and profits, you would be alright,” he says.

On the likely mortality in the startup sector, Bikhchandani says that the Covid crisis would accelerate the death of startups with low capital and high burn rate. According to him, the good startups will find finding even now though checks will come more slowly.

Dinesh Agarwal, Founder and CEO, IndiaMart believes that the government cannot do wonders by doling out sops and the simplicity of governance is the key to reviving the economy and attracting investment away from China. “It’s not the ease of doing business ranking but the actual ease of doing business that will make India attractive for investment,” he said, adding that “Ease of migration when you are going hungry is the actual ease of doing business.”

Mr Bikhchandani and Mr Agarwal addressed an online interaction with India’s management fraternity organized by All India Management Association (AIMA). The 18th edition of LeaderSpeak series was attended by more than 1700 business leaders and executives.

Vikram Chandra, former CEO, NDTV and founder of moderated the session. He pointed out that Indian and global investors tell him that they do not look at incentives or even the size of Indian market. “Instead, they want simplicity. They want tax terrorism to go away, regulatory flip flop to stop, taxation to be moderated etc,” he said.

Mr Agarwal said that while the government had reduced the tax rate for manufacturing and limited companies, there was no explanation for taxing the proprietorship and partnership enterprises at the highest rate, which form 95% of MSMEs and have to pay 33% to 42% income tax.

Mr Bikhchandani said that the government was unlikely to accept the startups’ request for reduction in capital gains tax on their investors from 28.5% because it regarded the pricing of publicly traded shares more fair than the privately traded shares. "However, that is not a deal breaker for foreign VCs. It is a problem only for the Indian VCs,” he said, adding that the real issue for the VCs was that there were not enough startups worth investing in India.

IndiaMart CEO argued that the government and the VCs had to bring parity between the so called technology startups and regular MSMEs for the purpose of funding and lending. He said that there could be no tech startups without a real physical product or service at the end. “You can’t have online restaurants, pubs or transportation,” he said, adding that employment was generated by MSME startups whereas tech startups were destroying jobs with automation.

Mr Bikhchandani said that the lockdown had got 4.5 lakh of the 5 lakh restaurants in India to shut down despite food being declared an essential item. Their employees left for home and even when they come back, they would struggle to find work as demand and supply chain are broken. “At 30% or 50% occupancy, restaurants cannot break even and landlords will not reduce the rent. So, restaurants will close and there will be unemployment,” he said.

Commenting on the Rs 20 lakh crore economic package of the government, Mr Agarwal said that while the money in the bank of women and farmers was the best thing, the package for business was too little, too late.

Mr Bikhchandani said that dole would not keep workers alive for 15-20 months without customers’ money. “The wheels of commerce have to start spinning again. Businesses need to sell stuff,” he said.

Mr Agarwal agreed that the government needed to reopen the economy. “If it is not good for business, it is not good for employment,” he remarked.

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