How the Government Plans to Support Startups in India

Government Plans to Support Startup

For those reading my blog for the first time, I want to update that I am also an entrepreneur. In 2012 I floated my first startup firm, and currently, we have offices in two cities. Why this flashback? It is because, in this blog, I am covering Government plans to support startups.

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On 16th of January 2016, the Government released an action plan outlaying steps to accelerate startup growth in India. The primary objectives were:

  • To have more startups in fields like agriculture, manufacturing etc. apart from the digital sector.
  • To expand the startup culture from existing tear I, II and III cities, to semi-urban and rural areas.

I will present a brief of the topics covered in the action plan. The purpose is to bring forward Government efforts to ease starting up in the country. I must also denote there are some points I have not covered below as wanted to include those subjects which are of immediate benefit and relevance for startups. I have mentioned the details of how to access the entire action plan at the end of this blog

The action plan covers the following heads, intending to promote ease of doing business.

Compliance.

I am an entrepreneur myself and trust me when I say this is a pain area. At times we don’t even know what compliances are required. Having offices in multiple geographies aggravates the problem. So the Government intends to simplify this matter by allowing self-certification by a mobile app. There are six labour and three environment laws which fall under this scheme. It is essential to understand that self-certification of environmental regulations is applicable for startups that fall under the white category. (Please click on this link to know the list of categorisation of industries).

Startup Hub

The Government plans to support startups by creating a single point of contact in the form of startup hubs. Where-in it envisages bringing all stakeholders, ranging from state and central authorities to VCs to legal professionals under one roof. This effort intends to provide startups with a mentorship and handholding program. This point is a godsend for potential founders from semi-urban and rural areas. I firmly believe that we have considerable potential in untapped semi-urban and rural areas. 

App and Portal

The Government will release a mobile app and a portal which will assist startups in the following ways.

  • Ease up the registration processes. This activity will allow startups to start operations without delays.
  • Allow filing and tracking of registration and compliances. Make available digital certificates easily downloadable.
  • Helps founders collaborate with fellow founders, mentors, ventures funds and other stakeholders of the startup ecosystem.

Intellectual Property Right and Patent Related Support

In my opinion, this one of the most thoughtful points of Government plans to support startups. Startup founders are supposed to be domain experts. They can create a product, establish a manufacturing unit or set up a biotech lab. However, IPRs and patents are essential to safeguard innovations. Here-in the Government can play the game-changer with its proposed plan. The key points are as follows:

  • Patent applications of Startups fast-tracked.
  • Government to set up a panel of facilitators for providing consultancy on IPR related practices in India and abroad. The facilitators to assist startups in filing and disposal of such applications. Facilitators to represent such startups in hearings or to contest claims of opposition as and when required. 
  • Government to bear all the costs related to such facilitation and startups to incur the statutory fees only.
  • 80% rebate on Patent application fees vis-a-vis payable by other firms.

*Although this scheme was on a pilot basis for the first year, that is until January 2017. I am not sure whether it is valid as of now. While writing this article didn’t find any news that suggested the termination of this facility. I will update this section; once I get to know the current status.

Public Procurement for Startups

The Government plans to assist startups in the manufacturing sector by easing the norms of public procurement for them. It has advised the centre, states, and PSU to procure 20% mandatorily from startups. The ‘prior experience’ clause stands waived for startups in the manufacturing sector. This waiver allows them to compete with an established player while applying in a public tender.

Exit Process in Case of Early Wind-up

It is a common fact that all startups are not a runaway success; unfortunately, some fail in the process. Hence the Government has created an easy exit process to liquidate the assets of the firm and paying off creditors. This process respects the concept of limited liability, which is a massive relief for the founders.

Seed Money

Everything said and done; nothing moves if there is no money. Hence the Government will set up a ‘fund of funds’ amounting to Rs. Ten Thousand Crores over four years. However, the Government will not take direct exposure to any startup. Then, how does this provide impetus to Government plans for supporting startups? Well, the answer is the Government intends to participate through SEBI registered Venture Funds. This strategy will have a multiplier effect on the startup ‘fund of funds’, where-in disbursement will happen effectively. Reason being the Government money will provide stimulus and confidence to venture funds to channel more cash towards startups.

Capital Gains Tax Exemption

Another thoughtful idea. Here-in the Government has decided to provide capital gains tax exemption to individuals who invest such proceeds as investments in a startup. I have a firm belief that this scheme will attract a lot of investors in startup funding.

Tax Exemption for Three Years

This point is self-explanatory. However, the significance of this point is evident to prospective startup founders. In my opinion, the Government genuinely desires to support startup culture in the country. It is willing to let go of its revenue sources towards this vision.

Tax Exemption on Investments above Fair Market Value

This clause is a significant relief for startups as fair market value always remains lower than the funding they attract. I will not be elaborating on this point since most of the founders reading this article understand the pain. Hence any funding by venture funds into startups above the fair market value will not be taxed.

Startup Fests

An essential activity while setting up any ecosystem. It is pertinent to organise such fest regularly. This opportunity will allow stakeholders to get to know each other better. The Government plans to make it an interactive session. Where-in, successful founders will share their journey, organising competitions like a hackathon and rewards and recognition to promote ideas.

Atal Innovation Mission & Self Employment Talent Utilisation

The way I understand it, it is an attempt to keep up the buzz created by various activities throughout the year. The Government plans to support startups by creating incubation centres, tinkering labs, innovation promotions, amongst other efforts.

Setup Incubation Centres

The Government intends to rope in the private sector to set up incubation centres across the country. Various Government departments have identified for this purpose will coordinate with private sector Player. The end goal of this effort is to create an environment of innovation at academic institution levels.

Innovation at Student Level

To foster the spirit of innovation, the Government intends to institutionalise various challenges and incentive programs at the school level. Such applications will expose students to innovations and will create a pool of future innovators. Thus we will see fostering of startup culture at the grass-root level.

Annual Incubator Challenge

The Government recognises the vital role of incubators in the startup ecosystem. Thus it has planned incentive programmes for incubators too. In the first year, it intends to identify ten incubators which have the potential of scaling up as world-class. The Government will provide these incubators with Rupees Ten Crore each for ramping up their infrastructure. And such programmes will be followed up every year. This step is again a significant action towards making the early stages of a startup more impactful.

While writing up this article, I have omitted a few points. The intention was to create an impactful reading for fence-sitting startup founders. As a result, I have covered those points which are of immediate interests for a startup. Thus for readers, who wish to get further details. I would recommend visiting www.startupindia.gov.in and download the action plan from there. In case you are unable to do so. Please mail me a request at connect@freemind.live, and I will email it.

Are you feeling motivated?

If the answer is yes, you may want to read this article on how to draw a business plan. There might be a few who are slightly concerned, given the current financial situations across the world. Should they take the plunge? We got you covered! Please click on this link to know whether you should?

I hope you liked reading this article. In case you may have any queries or suggestions, please write to me at connect@freemind.live. Thank you for your time.

Posted by Vivek

After working for a Fortune 500, Vivek got his calling and established a start-up in the field of consulting, which he is actively managing till date. An entrepreneur by heart, he couldn’t mentally settle down after achieving success in his venture which has offices in multiple locations, Vivek thought of penning blogs which will reflect on his life experiences, hobbies and interests, and hopes they leave a positive impact on anyone who reads it.

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