An Insight Into Startup India
As per a report by NASSCOM and Zinnov, India is one amongst the five largest startup communities in the world with the number of startups crossing 4,200, a growth of 40 percent, by the end of 2015.
The maturing Indian startup ecosystem is contributing to the Indian economy in a major way.
- The number of private equity, venture capitalist, and angel investors has grown by 100% since 2014
- The total funding in 2015 has seen a 125% rise as compared to 2014.
- The number of accelerators has grown by 40% from 80 in 2014 to 110 in 2015
- 80,000 jobs were created by startups.
Startup India is the nationwide plan of the Indian government to facilitate ease of doing business, by simplifying procedures and create a conducive environment for the startups to grow. Under this plan, various initiatives will be undertaken by both central and state government to support and boost startups in India.Looking at the above facts, it seemed like only a matter of time that the government did something to support the startup sector in India. And, thus was launched the ‘Startup India’ initiative in January 2016.
What are the features of Startup India?
Image Source: http://cdn.narendramodi.in/cmsuploads/0.40159400_1453200341_pm-launches-start-up-india-movement-unveils-action-plan-for-encouraging-start-ups.jpg
- Simplifying the startup process by providing an online portal and a mobile app that will help startups to get registered online in a day by just filling up a short form.
- Facilitating the ease of doing business by providing lower fees, legal support and assistance in the filing of patent applications and IPR by startups, and faster exit norms for startups.
- Extending support by setting up innovation centers and incubation cells, R&D labs, and research parks at national institutes to assist, guide and mentor startups.
- Funding through the ‘Fund of Funds’ with an initial corpus of INR 2500 crore, and a total of INR 10,000 crore over a period of 4 years and a credit guarantee scheme for loans to promote startups.
- Relaxing of norms like no inspection for the first 3 years, a 3-year tax holiday, self-certification compliance and exemption from taxes on capital gains which are invested in the Fund of Funds. It will help reduce cash outflows and bring down the cost of running a startup.
The startup community has largely applauded the efforts made by the Government. Vijay Shekhar Sharma, co-founder and CEO of Paytm said, “The announcements by the government were more than what a normal start-up would have expected”, while Nidhi Agarwal, founder, and CEO of Kaaryah, found the policy a ‘well-rounded, well-structured and articulated’.
While this initiative has brought some welcome news for the startup sector, there are certain flaws which need to be taken care of by the Government. Let’s take a look at them:
Unnecessary validations and recommendations
There is an Inter-Ministerial Board led by the Department of Industrial Policy and Promotion which ‘validates’ the innovative nature of an enterprise, and hence qualifies it as a startup. Also, their approval is necessary to be eligible for tax benefits. Furthermore, a startup is required to obtain a recommendation from a government recognized incubation, domestic venture fund or have an Indian patent, in order to be eligible. Such kind of validations and recommendations may provide a roadblock, and go against the intent of the Action Plan to reduce government involvement.
Failure to control redomiciling
While the Government has taken some positive steps by providing tax breaks to the startups, it has not taken positive steps to keep the startups and the wealth created by them within the country. According to Sharad Sharma, convenor of iSPIRT, the informal lobby group to promote the home-grown product, “All the Unicorns (companies valued above $1 billion) are basically no longer based in India; they’re Singapore-domiciled companies. Stop the re-domiciling and I think we have made some steps in that direction, although it fell short of many people’s expectations”.
The IT and tech services have got a giant boost, however, care should be taken not to lose focus on non-tech startups. The Government should make sure that this financial and advisory support reaches to the startup in agriculture, manufacturing and handicraft sectors.
Under the Action Plan, startups are exempt from inspection under a fixed number (six) of labor laws. However, there are 45 laws at the central level and more than 150 at the state level. The Center and the State both need to work in tandem to ensure a smooth rollout of the benefits under this plan.
It has only been six months since the Startup India Initiative has been announced. The results are yet to be out. Hence, these are early days to give a verdict. However, this scheme has given a formal structure to the Indian startup system and also given it the much-needed boost. Let’s wait and watch how the scheme fares.
Not enough encouragement for investors
N R Narayana Murthy, co-founder of Infosys, who also runs his own fund, Catamaran Ventures, was impressed by the Startup India initiative, however, he had hoped there was more in it for the investors; at least the vagaries surrounding exits should have been addressed. He said, “The PM’s move was great since the sector would create massive employment in the years to come. However, there wasn’t enough “encouragement for investors”.
Meanwhile, read more about the Startup India initiative here – http://startupindia.gov.in/index.php
Please share your thoughts in the comments section below.
Subscribe with us to get your dose of interesting news, research & opinions in the startup segment. Fill the form below: