March 18, 2016
Today, starting a new venture by an entrepreneur is a painful process. Since 2004, the number of procedures required to set up a startup is between 13 and 15 – which is inexcusable given that it takes less than half the number of procedures in developed economies.
Here is an example provided by a telecom entrepreneur – it took them 11 months after the award of their first licenses to roll out networks and cellular services. The need for approvals from 46 different government agencies, for instance, delayed the setting up of each base station/cell site. In the end, they had to seek over 4000 approvals – and this was just for one city. This shows how unfavorable the investment environment is and how complex the approvals processes are.
India’s economic and reform performance in 2015 has disappointed many. Despite outperforming its BRICS compatriots by being the fastest-growing economy in 2015 at 7.5%, domestic private investment saw a dip in 2015 and the recent Mid-Year Economic Analysis confirms this. The cause of this stall in private investment was driven by corporate India’s complex confusion of over-expansion, debt default and risk aversion in an unfavorable investment environment, and important bills being stalled in the Parliament.
Given all this, India still has the third-largest number of startups globally.
Let us concentrate at the pain points faced by the startups today:
- In a survey conducted by LocalCircles, 14% of those polled reported that registration and taxation were serious challenges in starting up.
- Providing tax incentives when corporates invest in startup businesses.
- Making capital recovery a real worry among investors. Under the current insolvency system in India, as per the World Bank report, the recovery rate for secured creditors from insolvency proceedings stands at 25.7 cents on the dollar compared to the 72.3 cents in OECD countries.
- Government apathy and corruption
- Complex approvals process
Taking this into consideration, the government of India has come with the Startup India initiative, it is based on an action plan aimed at promoting bank financing for startup ventures to boost entrepreneurship and encourage start-ups with job creation. The campaign was first announced by the Prime Minister in his August 15 address. It is focused on restricting the role of states in the policy domain and to get rid of "license raj" and hindrances.
Key points defined as part of the policy:
1. Single-window clearance even with the help of a mobile application
2. 10,000 crore fund of funds
3. 80% reduction in patent registration fee
4. Modified and friendlier bankruptcy code to ensure 90-day exit window
5. Freedom from mystifying inspections for three years
6. Freedom from capital gain tax for three years
7. Freedom from tax in profits for three years
8. Eliminating red tape
9. Self-certification compliance
10. Innovation hub under Atal Innovation Mission
11. Starting with 5 lakh schools to target 10 lakh children for innovation program
12. New schemes to provide IPR protection for startups
How can blockchain technology step up to support?
First let us understand what blockchain is.
Blockchain is a public ledger, an ordered and time-stamped record of transactions. This system is used to protect against double spending and modification of previous transaction records where transactions are recorded and confirmed anonymously. In common words, it’s a record of events that is shared among many parties (nodes). More importantly, once information is entered, it cannot be altered. Each full node in the network independently stores a block chain containing only blocks validated by that node. When several nodes all have the same blocks in their block chain, they are considered to be in consensus. The validation rules these nodes follow to maintain consensus are called consensus rules.
Where exactly is this chain located? Due to the open nature of cryptocurrencies, and the importance of the public having access to other blocks, the blockchain isn’t located on just one guy’s large computer. For example, the bitcoin blockchain is actually managed by distributed nodes. These nodes all have a copy of the entire blockchain. Nodes will forever come and go, synchronizing their own copies of the chain with those of other users. By distributing copies and access, the chain can’t simply go down, or disappear. It’s a decentralized system that is both sturdy and secure.
KEY BLOCKCHAIN CONCEPTS:
Decentralized consensus: This breaks the old method where one central database used to rule transaction validity, it transfers authority and trust to a decentralized virtual network and enables its nodes (entity) to continuously and sequentially record transactions on a public block, creating a unique chain: the blockchain. Each successive block contains a hash (a unique fingerprint) of the previous code; therefore, cryptography (via hash codes) is used to secure the authentication of the transaction source and removes the need for a central intermediary. The combination of cryptography and blockchain technology together ensures there is never a duplicate recording of the same transaction. You could think of consensus as the first layer of a decentralized architecture. It is the basis for the underlying protocol that governs a blockchain’s operation.
A Distributed Autonomous Organization is kind of incorporated on the blockchain because its governance is very dependent on the end-users who are part-owners, part-users and part-nodes on that decentralized network. Key aspects of a DAO are that each user is also a worker, and by virtue of their work, they contribute to the value appreciation of the DAO via their collective participation or activity levels. Arguably, bitcoin itself is the uber DAO.
The below diagram provides a conceptual views of how a central blockchain can be accessed for various requirements of a corporate entity. With the data accessible centrally, the business process would be eased and the time required for various processes can be drastically cut down.
In the above representation, we can see that the customer approaching an entity for company registration will fill in the necessary details mentioned in the block. After which, for each new process like giving your tax details, funding, patent registration and account opening, the details highlighted in blue need to be provided instead of repetitive details.
This is the advantage of the data on blockchain; the data can be decentralized within the entities on the network and can’t be tampered with as soon as it’s been accessed by any unknown entity. The other nodes (entities) would be notified and the modified data won’t be updated in the database and will be rejected.
This will not only help the customer but also the entities involved in the life cycle of the customer onboarding as the data isn’t centralized. It can be tamper-proof as the data is shared and updated in real time between the entities involved in the network.
Blockchain is a digital technology for recording and verifying transactions. The distributed ledger is a permanent, secure tool that makes it easier to create cost-efficient business networks without requiring a centralized point of control. With distributed ledgers, virtually anything of value can be tracked and traded. The application of this emerging technology is showing great promise in the enterprise. With the noble intentions of Startup India and Digital India, blockchain technology can be an effective way to achieve the goals of the initiatives and ease the business in India. Blockchain technology has been proven and provides all the required security features to implement the solution quickly.