Start-up India Scheme

Start-up India is a flagship initiative of the Government of India, intended to build a strong eco-system for nurturing innovation and Start-ups in the country that will drive sustainable economic growth and generate large scale employment opportunities. The Government through this initiative aims to empower Start-ups to grow through innovation and design. 

In order to meet the objectives of the initiative, Government of India is announcing this Action Plan that addresses all aspects of the Start-up ecosystem. With this Action Plan the Government hopes to accelerate spreading of the Start-up movement 

• From digital/ technology sector to a wide array of sectors including agriculture, manufacturing, social sector, healthcare, education, etc.; and 

• From existing tier1 cities to tier 2 and tier 3 cities including semi-urban and rural areas.

Key Features:

1. Definition:

“Start-up” hasbeen defined to mean an entityincorporated or registered inIndia, with an annual turnovernot exceeding Rs.25 Cr in anypreceding financial year, andworking towards innovation,development of new products,or services driven by technologyor intellectual property.

2. Self Certification:

Start-ups shall be allowed to self-certify compliance (through the Startup mobile app) with 9 labour and environment laws such as employee’s state insurance act (1948) or Water (Prevention & Control of Pollution) Act, 1974 etc.  

3. Single Window Platform: 

In order to commence operations, Start-ups require registration with relevant regulatory authorities. Delays or lack of clarity in registration process may lead to delays in establishment and operations of Start-ups, thereby reducing the ability of the business to get bank loans, employ workers and generate incomes.

Government has decided to set up a mobile app and web portal for the purpose of easy registration of company and filing for compliances/obtaining information on various clearances/ approvals/ registration.

4. Fast Track Patent Approval at Lower Costs: 

Intellectual Property Rights (IPR) are emerging as  a strategic business tool for any business organization to enhance industrial competitiveness. Startups with limited resources and manpower, can sustain in this highly competitive world only through continuous growth and development oriented innovations; for this, it is equally crucial that they protect their IPRs.

Government to bear facilitation cost: Under this scheme, the Central Government shall bear the entire fees of the facilitators for any number of patents, trademarks or designs that a Start-up may file, and the Start-ups shall bear the cost of only the statutory fees payable. 

Rebate on filing of application: Start-ups shall be provided an 80% rebate in filing of patents vis-a-vis other companies. This will help them pare costs in the crucial formative years.

The patent application of Startups shall be fast-tracked for examination and disposal, so that they can realize the value of their IPRs at the earliest possible.

5. ‘Fund ofFunds’:

One of key challenges faced by Start-ups in India has been access to finance. Often Start-ups, due to lack of collaterals or existing cash flows, fail to justify the loans. 

• In order to provide funding support to Start-ups, 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).

• The Fund will be in the nature of Fund of Funds, which means that it will not invest directly into Start-ups, but shall participate in the capital of SEBI registered Venture Funds.

• The Fund of Funds shall be managed by a Board with private professionals drawn from industry bodies, academia, and successful Start-ups. It is important that this corpus is not managed by Politicians or bureaucrats, but smart, savvy fund managers who have a track record on investing.

• The Fund shall ensure support to a broad mix of sectors such as manufacturing, agriculture, health, education, etc.

6. Credit Guarantee Fund for Start-ups:

Credit Guarantee Fund aims to catalyse entrepreneurship through credit to innovators across all sections of society and will be rolled out through SIDBI.

7. Tax Exemptions:

• Due to their high risk nature, Start-ups are not able to attract investment in their initial stage. It is therefore important to provide suitable incentives to investors for investing in the Start-up ecosystem. With this objective, exemption shall be given to persons who have capital gains during the year, if they have invested such capital gains in the Fund of Funds recognized by the Government. 

• With a view to stimulate the development of Start-ups in India and provide them a competitive platform, it is imperative that the profits of Start-up initiatives are exempted from income-tax for a period of 3 years.

8. Start-up India hub:

In today’s environment we have more Start-ups and entrepreneurs than ever before and the movement is at the cusp of a revolution. However, many Start-ups do not reach their full potential due to limited guidance and access

Start-up India Hub will act as a single-point of entire Start-up ecosystem and enable knowledge exchange for start-ups such as collaborate with Government, angel investors, incubators, banks, legal consultants etc.

9. Start-up Fest:

As part of “Make in India” initiative, Government proposes to:

• Hold one fest at the national level annually to enable all the stakeholders of Start-up ecosystem to come together on one platform. 

• Hold one fest at the international level annually in an international city known for its Start-up ecosystem.

10. Incubator set up by PPP: 

• 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. The incubator shall be managed and operated by the private sector.

• 35 new incubators in existing institutions. Funding support of 40% shall be provided by Central Government, 40% funding by the respective State Government and 20% funding by the private sectorfor establishment of new incubators.

• 35 new private sector incubators. A grant of 50% (subject to a maximum of INR 10 crore) shall be provided by Central Government for incubators established by private sector in existing institutions.

11. Launch of AtalInnovationMission (“AIM”)

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

• Entrepreneurship promotion through Self-Employment and Talent Utilization (SETU), wherein innovators would be supported and mentored to become successful entrepreneurs.

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

Critical Analysis

The scheme is criticized by professionals because of definition of Start-up provided in the scheme. The definition states that mere act of developing products or services that do not have potential for commercialisation or have no or limited incremental value for customers would not be a start-up. Most of Start-ups would lie outside purview of this definition.

Further eligibility of start-up,lies under definition or not, shall be approved or certified by an inter-ministerial board which is a retrograde step and against government policy of ‘Min Government Max Governance’.

After getting approval from inter-ministerial board, Start-up might not get benefit of 100% deduction from income tax for 3 out of first five years as government has made them liable for Minimum Alternate Tax (MAT) for initial years. MAT is currently charged at 18.5%on book profit.

Also the capital gains exemption benefits provided to investors are subject to various regulations like approval or shall be invested those capital gains only in Fund of Funds etc. These conditions might dilute the objective of start-up India scheme and scheme may remain as another good scheme on paper but not on ground level.

But apart from all these concerns Start-up India has potential tosolve India's problems and create jobs. Start-up India scheme is a fist of its kind initiative by government andhas potential to create an environment of starting your own business in India but not only depending on jobs provided by industry. Start-up India Action plan is a good start to this – but will need continued support and evolution to make this a true, deep revolution for the youth of India.