Triumphs of Startup India; Standup India

How far have we gone with our Big Bang in the India Startup Ecosystem, since the day PM Modi announced the ‘Startup India Campaign’ last year?

The event that witnessed the inauguration of this scheme by Mr. Arun Jaitley on 16 January 2016 was attended by top notch 40 CEOs, start-up founders and investors from Silicon Valley, including Masayoshi Son, CEO of Soft Bank , Sachin Bansal, founder of Flipkart and many others. The event was a huge success as it was for the first time when two lakh passes were sought to attend the Start-up India workshop at Vigyan Bhavan, New Delhi which has a total seating capacity of only 1,350 individuals.

The event held on 16th January, 2017 has generated considerable excitement and energy amongst entrepreneurs and the supporting ecosystem. The sound and light around the event has been amazing. As the week rolls over, the focus must shift to the real impact that this event and announcements around it may make.

First of all, we can’t undermine the amount of positive notion has been accorded to startups through this initiative. Such focus will surely help to channelize energy from all elements of the ecosystem - entrepreneurs to investors, and from mentors to academia. This in itself is a big achievement.

In my opinion, the set of specific announcements made to turn entrepreneurship into a more inclusive career option is great. As the emphasis on startups hubs to help them move beyond Gurgaon and Bangalore, is a significant step. Another fact is that, the government wants to not hatch unicorns one after the other (touch 100M or become a unicorn) but it wants people to dream and build differently.

Second, according to the scheme that is announced, a start-up is an entity that is headquartered in India, which was opened less than 5 years ago and have an annual turnover less than Rs. 25 Crore (US $ 3.7million).

Primarily, ‘Startup India’ campaign is based on an action plan aimed at promoting bank financing for start-up ventures to promote entrepreneurship and encourage start-ups with jobs creation whereas ‘Stand up India’ initiative is aimed at promoting entrepreneurship among SC/STs, women communities.

Thirdly, the proposed Compliance Regime based on Self-Certification, for example, will be highly impactful in startups in "old economy" sectors, even as some of the labor law compliances are more broadly applicable. Similarly, relaxation of norms for public procurement is a great move to reduce the go-to-market hurdle for manufacturing startups, as also a means to expose public buyers to upcoming innovation.

The Rs. 10,000 crore fund-of-funds, as well as the credit guarantee scheme, are being designed to target a broad mix of sectors such as manufacturing, agriculture, healthcare and education. Launch of Grand Innovation Challenges around the nation's pressing problems would be helpful in channelizing the euphoria towards these problems.

The theme of inclusion has also been carried through to geographical diversity of startups. Provisioning of Tinker Labs, Startup Centers and Technology Business Incubators, if managed well, can help expand the footprint of startup activity to next tier cities.

At the same time, Research Parks in IITs/ IISc will provide the necessary research concentration and support to drive the research innovation agenda - the success of such a model has already been demonstrated in IIT Chennai. Fostering a culture of innovation by reaching out to students through 5 lakh schools will ensure that we create a whole generation of entrepreneurs in next 10-20 years.

More emphasis on Legal Support and Fast-Tracking Patent Examinations is also an impressive move. However, IP creation and protection seems to take a backseat. Looking at solving a million problems, it is important that the right incentives for innovators are provided for too. Especially, if it is for the commercial potential of those innovations - the emphasis on Intellectual Property will serve to do that. Some of the other initiatives like Faster Bankruptcy Settlement and Tax Exemptions are interesting signals, but perhaps not game changers by themselves.

Yet, others like the Startup Hub, Mobile App for Collaboration amongst ecosystem partners and Startup Fests belong to the set of items that I would rather see the ecosystem solve. One big miss in the Startup India Action Plan has been the silence around ‘Angel Tax’.

While incubator investments have been excluded out of this tax, premium over FMV in individual angel investment still seem to continue to be taxable in hands of startups. Or is this one being saved for the budget?

Major Challenges
From obtaining financial support such as debt financing, equity investments, grants and non-financial support including incubation, acceleration support, mentoring and technical experts. It also includes the government policies and programs relevant to start-ups, academia and other organization’s and firms that in different ways interact with or support start-ups.

The kinds of new start-ups that offer an opportunity for growth and employment generation are considered to be those that are innovating, driven and looking to scale. Cash flow, creating a capacity to scale and finding the right people have always posed to be major challenges for India start-ups and the Startup India’ campaign is aimed at addressing this and more.

In India, Startups have always faced snags like corruption and government indifference, and the fear of giant corporates that might oppose or kill the start-ups which challenge them. A possibility of anti-competitive practices still looms over the budding saplings of start-ups. The setting up of ‘inter-ministerial board’ led by the Department of Industrial Policy and Promotion to decide on the ‘innovative nature’ of an enterprise in order to qualify the same as a startup is also not a laudable step under this scheme if the desire is to attain unbiased growth in the start-up ecosystem. This step should done away with if the government doesn’t want new startups to register in a foreign land like Flipkart (a company whose founder is an Indian citizen) but registered the firm in Singapore.

Major Action Plan
Prime Minister, Mr. Narendra Modi while addressing the first conference of start-up entrepreneurs introduced the action plan to foster the new start-ups, which are as follows:-

1. To reduce the regulatory burden on start-ups, self-certification option will be provided, and it will apply to laws like payment of gratuity, contract labour, employees provident fund, water and air pollution acts.
2. Creation of startup India Hub for easy access to knowledge and funding at one spot.
3. Ease of registration by filling up a short form through a mobile app.
4. Legal Support for fast-track patent examinations at lower costs. ( 80 % rebate in fees for filing patent applications)
5. In order to provide the infant start-ups with funding, the government will set up a fund with an initial corpus of Rs. 2500 crore and a total corpus of Rs.10000 crore over four years. This credit guarantee fund for start-ups would help the flow of venture debt from the banking system to start-ups by standing guarantee against risks.
6. Exemption from Capital Gains Tax on investments made by incubators in start-ups.
7. Income tax exemption for first three years.
8. Innovation core programmes for students in 5 lakh schools
9. The launch of Atal Innovation Scheme for encouraging innovation among people.
10. Establishment of 35 incubators and 31 innovation centres at national institutes on PPP model.
11. Establishment of 7 new research parks with an investment of Rs.100 crore each.
12. Promotion of entrepreneurship in biotechnology by establishing 50 bio-incubators, 150 technology transfer offices and 20 bio connect offices.
13. Faster exit option for start-ups in the case of bankruptcy or closure (within a period of 90 days).