Startup India Action Plan: A Brief

BFSI Industry
Jan 25, 2016 by Advisorkhoj Team | BFSI Industry | 0 Downloaded

16th January 2016 is going to be a historical day in the startup ecosystem. This day will be a milestone for all struggling and flourishing entrepreneurs as the ecosystem gets well deserved attention from the Government. Never before has India experienced an event of this scale where Prime Minister, Ministers, policy makers and major start up influencers has gathered all on one platform with the sole agenda of how to make this ecosystem a more conducive one. Amitabh Kant of DIPP rightly said “The interactions today will be the catalyst for creating a completely new India”. This one quote summed up the objective of the event.

The mentality of Indian youth has always been one of job seekers. The mentality needs to become one of job creators. Even if the startups are employing 5 people, they are contributing to the country. These were the words of Shri Narendra Modi, Prime Minister, when he addressed the crowd at the event. On August 15, 2015 the phrase ‘Startup India Standup India’ was said out loud from the ramparts of Red Fort. In its official launch the host of startups present in the event and every other current and aspiring entrepreneur waited with bated breath for the Government to unveil the Plan of Action for this campaign. Let us take a look at the Plan of Action revealed for the ‘Startup India Standup India Movement’.

  • Compliance regime based on self certification

    – Startups often face regulatory burden. Unawareness on the part of startups has caused intrusive actions by the regularity authorities. Startups shall be allowed to self-certify, through the Startup Mobile app, with 9 labour and environment laws. In case of labour laws, no inspection will be conducted for three years. In case of environment laws, startups under ‘white’ category would be able to self certify compliance. In some cases random checks may also be carried out.

  • Startup India hub

    – A single-point of contact and hand-holding for the start up ecosystem. The platform shall enable knowledge exchange and access to funding. The Hub allows the startups to get connected with various stakeholders at every level. Mentorship will be offered to startups to foster innovation.

  • Virtual Platform through Mobile App

    – The Mobile App and platform to be launched in April is meant to ease the process of starting up. It is meant to be a one stop virtual platform which allows easy contact with all stakeholders at all levels. Making the process of registration easier by integrating with required Government Bodies.

  • High Qualiy Patent protection

    – Prime Minister Narendra Modi said patent protection and IP rights are a major concern for Indian startups. The Government will fast track IPR procedure for stratups. For effective implementation panel of facilitators will be setup. Facilitators will be responsible for providing general advisory on different IPRs as also information on protecting and promoting IPRs in other countries. The Government will bear the facilitation cost and also provide rebates on filing the application.

  • Relaxed norms of public procurement for startups

    – an equal platform to Startups, in the manufacturing sector, vis-à-vis the experienced entrepreneurs/ companies in public procurement. At present, effective April 1, 2016 Central Government, State Government and PSUs have to mandatorily procure at least 20% from the Micro Small and Medium Enterprise (MSME). Government shall exempt Startups from the criteria of “prior experience/ turnover”. However, no relaxation will be provided in the quality standards or the technical parameters.

  • Faster exits for startups

    – This will promote entrepreneurs to experiment with new and innovative ideas, without having the fear of facing a complex and long-drawn exit process. The Insolvency and Bankruptcy Bill 2015 (“IBB”), tabled in the Lok Sabha in December 2015 has provisions for the fast track and / or voluntary closure of businesses. In terms of the IBB, Startups with simple debt structures or those meeting such criteria as may be specified may be wound up within a period of 90 days from making of an application for winding up on a fast track basis.

  • Funds of funds with a corpus of Rs 10,000 crore

    – In order to provide funding support to Startups, Government will set up a fund with an initial corpus of INR 2,500 crore and a total corpus of INR 10,000 crore over a period 4 years (i.e. INR 2,500 crore per year) . It will not invest directly into Startups, but shall participate in the capital of SEBI registered Venture Funds. The Fund will be provided to a broad mix of sectors.

  • Credit Guarantee Fund

    – Catalyse entrepreneurship through credit to innovators across all sections of society. Credit guarantee mechanism through National Credit Guarantee Trust Company/SIDBI shall conceive with a budgetary corpus of 500 Crore per year for the next four years. This is a step towards overcoming the traditional stigma associated with the failure of startups.

  • Tax Exemption on Capital Gains

    – Exemption shall be given to those who have capital gains during the year, if they have invested such capital gains in the Fund of Funds recognized by the Government. This will augment the funds available to various VCs/AIFs for investment in Startups. In addition, existing capital gain tax exemption for investment in newly formed manufacturing MSMEs by individuals shall be extended to all Startups.

  • Tax exemption for Startups for 3 years

    – Profit of startups, set up after April 1, 2016, shall be exempted from income-tax for a period of three years. This step has been taken to promote growth of Startups.

  • Tax exemption on investments above Fair Market Value

    – In line with the exemption available to venture capital funds to invest in startups above fair market value (FMV), investments made by incubators above FMV shall also be exempted.

  • Startup fests

    – For showcasing innovation and providing a collaboration platform fests will be held Nationally and Internationally in cities and countries known for their startup culture. This will allow new and existing startups, mentors, venture capitalists and industry leaders to interact.

  • Launch of Atal Innovation Mission

    The Atal Innovation Mission (AIM) shall have two core functions:

    • Entrepreneurship promotion through Self-Employment and Talent Utilization (SETU)

    • Innovation promotion: to provide a platform where innovative ideas are generated.

The main components proposed to be undertaken as part of the mission include:

  • Establishment of sector specific Incubators

  • Establishment of 500 Tinkering Labs

  • Pre-incubation training to potential entrepreneurs in various technology areas

  • Strengthening of incubation facilities in existing incubators and mentoring of Startups

  • Seed funding to potentially successful and high growth Startups Innovation promotion:

  • Institution of Innovation Awards (3 per state/UT) and 3 National level awards

  • Launch of Grand Innovation Challenge Awards for finding ultra-low cost solutions

  • Harnessing Private Sector for Incubators

    – 35 new incubators in existing institutions. Funding support of 40% (subject to a maximum of Rs 10 crore) shall be provided by central government for establishment of new incubators in existing institutions for which 40% funding by the respective state government and 20% funding by the private sector has been committed. 35 new incubators in private sectors. Funding support of 50% (subject to a maximum of Rs 10 crore) shall be provided by central Government. All incubators to be managed by the Private sector.

  • Innovation Centre at National Institutes

    – Government shall set up seven new research parks with an initial investment of Rs 100 crore each. These parks shall enable companies with focus on research and development to gain expertise of academic/research institution. 31 centres of innovation, 13 startup centres and 18 technology business incubators in national institutions will be established.

  • Promote Entrepreneurship in Biotechnology Sector

    – In order to promote Startups in the sector, The Department of Biotechnology shall be implementing the following measures along:

    • Bio-incubators, Seed Fund and Equity Funding:

    • 5 new Bio-clusters, 50 new Bio-Incubators, 150 technology transfer offices and 20 Bio-Connect offices will be set up in research institutes and universities across India.

    • Biotech Equity Fund – BIRAC AcE Fund in partnership with National and Global Equity Funds will provide financial assistance to young Biotech Startups.

  • Innovation focused programmes for students

    • Innovation core: A program shall be initiated to target school kids with an outreach to 10 lakh innovations from five lakh schools.

    • NIDHI: A Grand Challenge Program (National Initiative for Developing and Harnessing Innovations) to support and award 10 lakhs to 20 student innovations from Innovation and Entrepreneurship Development Centres.

    • Uchhattar Avishkar Yojana: It has earmarked 250 crore per annum towards fostering ‘very high quality’ research amongst IIT students.

How is a Startup defined?

As an entrepreneur how do you ascertain where your start up is eligible for the benefits lined out in the Plan of Action? The startups have been defined in the Plan of Action as it goes as, Startup means an entity, incorporated or registered in India not prior to five years, with annual turnover not exceeding INR 25 crore in any preceding financial year, working towards innovation, development, deployment or commercialization of new products, processes or services driven by technology or intellectual property.

Provided that such entity is not formed by splitting up, or reconstruction, of a business already in existence.

Provided also that an entity shall cease to be a Startup if its turnover for the previous financial years has exceeded INR 25 crore or it has completed 5 years from the date of incorporation/ registration.

Provided further that a Startup shall be eligible for tax benefits only after it has obtained certification from the Inter-Ministerial Board, setup for such purpose.

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