Current Business Setup Process in India

Today starting a new venture by an entrepreneur is a painful process, since 2004, the number of procedures required to setup a startup is between 13 and 15 – which is inexcusable given that it takes less than half the number of procedures in developed economies.

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. They 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 just shows how unfavorable investment environment and the complex approvals process.

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 percent. 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 is 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 Parliament.

Given all this India still remains third largest number of start-ups globally.

Let us concentrate at the pain points faced by the startups today;

• In a survey conducted by Local Circles, 14 per cent of those polled reported that registration and taxation was found to be a serious challenge in starting up.
• Providing tax incentives when corporates invest in start-up 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 an insolvency proceeding stands at 25.7 cents on the dollar – compared to the 72.3 cents in OECD countries.
• Government apathy, corruption
• Complex approvals process

Startup India Initiative

Taking this into consideration, government of India has come with a “Startup India” initiative, it is based on an action plan aimed at promoting bank financing for start-up ventures to boost entrepreneurship and encourage start-ups with jobs creation. The campaign was first announced by the Prime Minister in his 15th August address. It is focused on to restrict role of States in 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 3 years
6. Freedom from Capital Gain Tax for 3 years
7. Freedom from tax in profits for 3 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 to start-up

Blockchain Overview

How could Blockchain technology could 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 t’s a record of events that is shared between 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.

A rough idea of what a blockchain may look like, courtesy of Yevgeniy Brikman

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 to the first layer of a decentralized architecture. It is the basis for the underlying protocol that governs a blockchain’s operation.

Source: Courtesy of William Mougayar.

 Currency related segment targets money transfers, payments, tips, or funding applications The end-user typically goes to an exchange or uses their own wallet to conduct such transactions, benefiting from transaction cost reductions, speeds in settlements, and freedom from central intermediaries. Today’s exchanges are centralized, but it’s likely we’ll see another generation of decentralized trusted exchanges. And although the current Bitcoin wallets today are “dumb” wallets, they could become smarter, via an ability to launch smart contracts.

Pegged services to the blockchain represent an interesting segment, because these Apps utilize the blockchain’s atomic unit which is a “value store” capability, but they also build on top of that with their unique off-chain services. For e.g. decentralized identity or decentralized ownership is a horizontal blockchain service, but it can be applied to any other vertical segment, such as for videos, music, or photography, just to name a few simple examples.

Smart contracts are small programs or scripts that run on a blockchain and govern legal or contractual terms on their own. They represent a simple form of decentralization. They will become available in a variety of application areas such as for wagers, family trusts, escrow, time stamping, proofs of work delivery, etc. In essence, they are about moving certain assets or value from one owner to another, based on some condition or event, between people or things. Smart contracts represent an “intermediate state” between parties, and we will trust these smart programs to verify and take action based on the logic behind these state changes. Example the two parties involved can bake the terms and implications of their agreement programmatically and conditionally, with automatic money releases when fulfilling services in a sequential manner, or incur penalties if not fulfilled. They are digital assets (or things) that know who their owners are. Their ownership is typically linked to the blockchain.

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”.

BLOCKCHAIN STARTUP ECOSYSTEM

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 time required for various process 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 on 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 cant be tampered with as soon as its been accessed by any unknown entity the other nodes (entities) would be notified and the modified data wont be updated in the data base 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 tampered proof as the data is shared and updated in real time between the entities involved in the network.

Conclusion

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. The BlockChain technology has been proven and provides all the required security features to implement the solution quickly.