Prime Minister Narendra Modi spoke about Startup India initiative from the ramparts of the Red Fort on the occasion of India's 69th Independence Day. He emphasized that this initiative would encourage entrepreneurship among the youth of India.
What is Startup India?
Startup India is a flagship initiative of the Government of India, intended to build a strong eco-system for nurturing innovation and Startups in the country that will drive sustainable
economic growth and generate large scale employment opportunities. The Government through this initiative aims to empower Startups to grow through innovation and design.
In order to meet the objectives of the initiative, Government of India announced an Action Plan that addresses all aspects of the Startup ecosystem. With this Action Plan the Government
hopes to accelerate spreading of the Startup movement:
• From digital/ technology sector to a wide array of sectors including agriculture, manufacturing, social sector, healthcare, education, etc.; and
• From existing tier 1 cities to tier 2 and tier 3 cities including semi-urban and rural areas.
The Action Plan is divided across the following areas:
• Simplification and Handholding
• Funding Support and Incentives
• Industry-Academia Partnership and Incubation
Simplification and Handholding
- Compliance Regime based on Self-Certification - To reduce the regulatory burden on Startups thereby allowing them to focus on their core business and keep compliance cost low.
- Startup India Hub - To create a single point of contact for the entire Startup ecosystem and enable knowledge exchange and access to funding.
- Rolling-out of Mobile App and Portal - To serve as the single platform for Startups for interacting with Government and Regulatory Institutions for all business needs and information exchange among various stakeholders.
- Legal Support and Fast-tracking Patent Examination at Lower Costs - To promote awareness and adoption of IPRs by Startups and facilitate them in protecting and commercializing the IPRs by providing access to high quality Intellectual Property services and resources, including fast-track examination of patent applications and rebate in fees.
- Relaxed Norms of Public Procurement for Startups - To provide an equal platform to Startups (in the manufacturing sector) vis-à-vis the experienced entrepreneurs/ companies in public procurement.
- Faster Exit for Startups - To make it easier for Startups to wind up operations.
Funding Support and Incentives
- Providing Funding Support through a Fund of Funds with a Corpus of INR 10,000 crore - To provide funding support for development and growth of innovation driven enterprises.
- Credit Guarantee Fund for Startups - To catalyse enterpreneurship by providing credit to innovators across all sections of society.
- Tax Exemption on Capital Gains - To promote investments into Startups by mobilizing the capital gains arising from sale of capital assets.
- Tax Exemption to Startups for 3 years - To promote the growth of Startups and address working capital requirements.
- Tax Exemption on Investments above Fair Market Value - To encourage seed-capital investment in Startups.
Industry-Academia Partnership and Incubation
- Organizing Startup Fests for Showcasing Innovation and Providing a Collaboration Platform - To galvanize the Startup ecosystem and to provide national and international visibility to the Startup ecosystem in India.
- Launch of Atal Innovation Mission (AIM) with Self-Employment and Talent Utilization (SETU) Program - To serve as a platform for promotion of world-class Innovation Hubs, Grand Challenges, Startup businesses and other self-employment activities, particularly in technology driven areas.
- Harnessing Private Sector Expertise for Incubator Setup - To ensure professional management of Government sponsored / funded incubators, Government will create a policy and framework for setting-up of incubators across the country in public private partnership.
- Building Innovation Centres at National Institutes - To propel successful innovation through augmentation of incubation and R&D efforts.
- Setting up of 7 New Research Parks Modeled on the Research Park Setup at IIT Madras - To propel successful innovation through incubation and joint R&D efforts between academia and industry.
- Promoting Startups in the Biotechnology Sector - To foster and facilitate bio-entrepreneurship.
- Launching of Innovation Focused Programs for Students - To foster a culture of innovation in the field of Science and Technology amongst students.
- Annual Incubator Grand Challenge - To support creation of successful world class incubators in India.
What We Think About Startup India Action Plan
As mentioned above, Honorable Prime Minister has declared quite a few things in the Action Plan. While some of them need more clarity, a few of them are indeed revolutionary.
First, we think the Tax Exemption announcement is one of the biggest ones. In fact the video telecast of the event is evidence on how people who were in the room reacted to this announcement. Loud cheers followed the moment Mr. Modi mentioned tax exemption. Many startups in India, including us at Appknox, have taken the Singapore route primarily for tax benefits. For a startup in the early stage, the first 2-3 years are very crucial. Every penny is important and a tax benefit can go a long way in boosting some working capital.
There is a small bit of issue here though. The action plan states that this benefit is valid for companies that will be registered from April 1st, 2016 onwards. Whereas the action plan document defines a startup as a company that has been in existence for less than 5 years and has a turnover of less than Rs 25 cr per year. I think, by definition, it is fine but it does leave vagueness as this benefit might end up only for companies that are registered in the next financial year.
Second thing that we thought was very important is that of Intellectual Property Rights. Having worked in the security domain for a few years now, we think IP Rights and laws are fairly weak in India. Most startups also prefer applying patents in other countries like the US for a variety of reasons. The announcement was that the government will make IPR procedure transparent for startups. There will be a Fast Track mechanism setup for patent applications for faster examination and disposal. Adding to that is the benefit of 80% rebate on patent filing charges which is welcoming.
The issue here is that that Action Plan document mentions in a clause that for a lot of these benefits, startups will have to get a certificate issued from the government.
"For a startup to get government tax benefits it has to receive a certification from an Inter-Ministerial Board that will be set up for such purposes."
There is no clarity yet on when will this board be setup, what does it comprise of, etc.
Third benefit that we see is in the process of winding up a business. Anyone who has tried to close a business in India knows how painful it is. Often people just let it be and go disfunctional. The Prime Minister has announced that there will be a provision for fast-tracking closure of businesses as part of ‘The Insolvency and Bankruptcy Bill 2015’. Startups with simple debt structures may be wound up within a period of 90 days from making of an application for winding up on a fast-track basis.
Again, while this is good, there is lack of clarity in the words used in this document. There are a lot of things open to interpretation and that's what makes all government proposals weak.
Overall, I think the move is definitely welcoming. There is a good amount of positivity among startups and we know that we startups can go a along way even with just some positive annoucements. It is important to see how the government converts this paper document into real action. I am sure startups will be happy to support and help as long as things move in the right direction. Meanwhile, we should insist the government and DIPP to share more details on things that need clarity.