Today it is self-evident that societies which are not good at innovating get left behind. To be robust in innovating it is not only critical to be able to think up newer and better solutions to all the challenges around us, but also have the wherewithal to deliver such solutions. Innovation today runs on digital data which are seamlessly transmitted, totally storable and endlessly manipulatable.

The good news for India is that what it lost out in manufacturing, it has made up through its prowess in software so that it is now well-placed to play a role in the fourth industrial revolution which is digitally enabled. Indian IT and start-ups have marked a place for themselves in Industry 4.0, made up of areas like automation in manufacturing, internet of things, cloud hosting and cognitive computing.

A measure of a country’s innovation status can be had from the number of unicorns it hosts — start-ups valued at $1 billion or more. In CB Insights’ January 2019 global list of unicorns totalling 341 companies with a combined valuation of $1,149 billion, there are 90 Chinese companies, 15 Indian companies and four from tiny Israel, considered the home of innovation.

But having come this far, some storm clouds have gathered over the Indian innovation scene. What the Indian engineer has done, the Indian regulator is in danger of undoing. The new Draft National E-commerce Policy issued by the Department for Promotion of Industry and Internal Trade (DPIIT) to govern e-commerce has upset sections of Indian business.

Casting the net too wide

Nasscom, the software and services industry lobbying group, has issued detailed comments which are worth noting. The first point it makes on the draft policy is that it spreads the net too wide. It should stick to e-commerce platforms, the sale of goods and services on them and sellers on the platforms. But the policy has sought to cover “marketing or distribution” when it should stick to the scope of e-commerce as defined in the FDI policy and the Consumer Protection Bill. This will be good for regulatory clarity.

A key issue with the policy is that it seeks disclosure of source codes and wants to have the right to give preferential treatment to digital products created in India. Nasscom says it is unclear how disclosure of source code will aid technology transfer. In fact, it can do the opposite as companies can delay introduction of technology in India if it requires disclosure of source code. Technology transfer is aided by policies that encourage cross-border trade, FDI, licensing agreements, international movement of people and cooperation between governments.

Another key issue is data. Nasscom is for users and consumers having control over the data they generate and own. However, barring business entities from sharing ‘sensitive data’ of Indian users with third parties even with customer consent goes against users’ rights over their data. This is contrary to the provisions of the Personal Data Protection Bill which deals with regulation of cross border personal data flows and key privacy concepts. The policy is for restricting the cross-border flow of data but it is not clear why this will be good for the consumer, the domestic industry and data as a national asset. Nasscom is forthright in saying, “the policy erroneously equates restriction on cross-border flow of data with access to data.”

By asking for data gathered in India to be stored in India, the policy ignores the fact that it is possible to share data with an entity in India even if the data is stored outside India. How does such a policy help start-ups and MSMEs develop innovative solutions?

Nasscom feels restrictions on cross border data flows create trade barriers. Artificial intelligence (AI) start-ups have not grown sufficiently in India because they do not have adequate access to large datasets which can be used to train AI. Many insights from predictive analytics in sectors like precision agriculture and diagnostics are available because of access to large data sets built from data collected from all over the world. As if this were not enough, life for start-ups has also been made difficult over the issue of angel tax. The attempt by the government to relax norms governing which start-ups come under the ambit of the tax has drawn the comment that this move will help new players but not relieve existing players of their problems. The angel tax is causing global angel investors to avoid putting their money in India and this is killing many nascent good ideas for start-ups in India by denying them their first cheque.

Angel tax is levied when a privately-held company is seen to raise funds at a rate higher than its fair market value. A tax of 30 per cent is levied on the excess valuation. This has caused many start-ups to receive tax notices which come with high penalties for non-compliance. Any firm receiving a tax notice, irrespective of whether it has to eventually pay up or not, will have to undergo stress and spend on legal fees.

At a time when policy should aid start-ups chasing innovation, dated regulatory mindsets and short-sighted tax officials are ending up doing the opposite.

The writer is a senior journalist

Related Topics
comment COMMENT NOW