India: The Start-Up India Initiative – A Look At Its Viability

Last Updated: 4 October 2016
Article by Stephen Mathias


On January 16, 2016, Prime Minister Narendra Modi launched the Start-Up India ("SUI") initiative, which aims to build a strong ecosystem for nurturing start-ups and innovation in the country. The SUI is a mixture of regulatory concessions and assistance to start-ups and entrepreneurs. Since then the government has moved swiftly to implement many of the initiatives.

Summary of SUI initiative

The following are the key proposals of the SUI programme:

  1. A website and an app for start-ups has been launched. Both the website and the app allow start-ups to complete certain regulatory compliances. It is also intended that the same would have backend integration with the company registry.
  2. Nine labour law legislations relating to provident fund, gratuity, employee state insurance, industrial disputes, standing orders and contract labour have been identified. There will be no inspections by labour authorities on start-ups in respect of these legislations for the first year and in the second and third year, only if there is a credible complaint of violation. The same applies to start-ups in the "white category" under pollution control laws.
  3. The government will launch a scheme whereby IP applications of start-ups will be fast tracked. This includes patents, trademarks and designs. The period is not mentioned. This has not been implemented so far. It should be noted that current timelines for a patent are 3-7 years! There is also a panel of facilitators to assist start-ups on IP issues and their fees will be paid for by the government. The panel largely comprises advocates and trademark and patent agents. The fees have also been fixed by the government.
  4. The Government would not insist on "prior experience" or "prior turnover" for procurement of products from manufacturing start-ups. The notification essentially acts as an advisory to government departments that they may relax the requirement of prior turnover and prior experience with regards to micro and small industries. It may be noted that the public procurement policy of the Government of India already allows for this concession.
  5. Start-ups can liquidate companies within 90 days. It currently takes 1-2 years to liquidate an Indian company. In case of companies with debt, an insolvency professional would be appointed to liquidate assets and pay creditors under the proposed Insolvency and Bankruptcy Act. The requirement of liquidation within 90 days has not been implemented so far. However, the Bankruptcy Code does provide for a fast track insolvency resolution process for some companies notified by the government. Incidentally, these provisions of the law have not been notified yet nor has the government notified start-ups and being entitled to avail of this procedure.
  6. The Government would set up a "fund of funds" to invest up to 50% of the fund in other registered VC funds/AIM's. The proposed corpus would be Rs 10,000 crores which would be invested over 4 years at Rs 2500 crores per year. The fund will support areas like manufacturing, agriculture, health and education. While the fund of funds has already been set up, it would appear that the Government has so far fallen short of its commitments for the first year, having disbursed Rs 500 crore in March 2016 and a further Rs 500 crore has been allocated in the current budget.
  7. An exemption has been provided from capital gains tax arising from sale of shares in a start-up, if the gains are reinvested in the "fund of funds". When the stake in the fund of funds is sold however, there would be capital gains tax. It is therefore more of a deferment of taxation. This benefit should be seen in the light of tax benefits already available under tax law and to foreign VC's under tax treaties with Mauritius, Singapore and other countries.
  8. A three year tax holiday has been provided to start-ups provided there is no dividend distribution. Further, tax benefits available to manufacturing MSME's are available to start-ups for the three year period or 2016-19. Requirement to reinvest in "new assets" would be extended to computer software. There would also be a tax exemption covering receipt of share consideration at less than market value.
  9. A plethora of incubation centres, hubs, start-up fests, entrepreneurship support, labs, innovation centres, research parks, etc, to be set up.

Meaning of Start-Up

The following are the requirements to be qualified as a start-up. The start-up must meet all of these conditions:

  1. Innovation requirement – new product or service or process or significantly improved existing product or service or process that will create or add value for customers or workflow;
  2. Funding/Support requirement – support of post graduate college or registered incubator or government funded incubator or SEBI registered fund or funded by government or have a patent;
  3. Should have not completed 5 years and have turnover of less than Rs 25 crores; and
  4. Approval by inter ministerial board for tax benefits.

Evaluation of the SUI

Overall, the approach of the Government in supporting start-ups is laudable. More importantly, the government has moved swiftly to implement many of the proposals in the months following the launch of the Start-Up India initiative. However, when examining the fine print, the initiatives appear not to be that substantial in their impact. A key aspect is the innovation requirement – start-ups must prove that they are providing an innovative product or service. It will be hard for many start-ups to prove this especially if the government sets a high standard akin to that of a patent. It is also true that most start-ups are providing services that may not have been available in India before but are available in some form or the other in other countries especially the USA. A key requirement for start-ups is support from the government in terms of procurement of goods and services from them. The Government in Singapore has for example been quite active in this regard. The key issue here is not to merely make it possible for government departments to relax previous experience/net work requirements but to actually do so in substantial number of projects. Finally, it has to be noted that Indian remains a largely overregulated market. Making it easier to comply with employment laws is possibly just a drop in the ocean in terms of regulatory issues that a start is likely to face as it grows through its life cycle.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

To print this article, all you need is to be registered on

Click to Login as an existing user or Register so you can print this article.

In association with
Related Video
Up-coming Events Search
Font Size:
Mondaq on Twitter
Register for Access and our Free Biweekly Alert for
This service is completely free. Access 250,000 archived articles from 100+ countries and get a personalised email twice a week covering developments (and yes, our lawyers like to think you’ve read our Disclaimer).
Email Address
Company Name
Confirm Password
Mondaq Topics -- Select your Interests
 Law Performance
 Law Practice
 Media & IT
 Real Estate
 Wealth Mgt
Asia Pacific
European Union
Latin America
Middle East
United States
Worldwide Updates
Check to state you have read and
agree to our Terms and Conditions

Terms & Conditions and Privacy Statement (the Website) is owned and managed by Mondaq Ltd and as a user you are granted a non-exclusive, revocable license to access the Website under its terms and conditions of use. Your use of the Website constitutes your agreement to the following terms and conditions of use. Mondaq Ltd may terminate your use of the Website if you are in breach of these terms and conditions or if Mondaq Ltd decides to terminate your license of use for whatever reason.

Use of

You may use the Website but are required to register as a user if you wish to read the full text of the content and articles available (the Content). You may not modify, publish, transmit, transfer or sell, reproduce, create derivative works from, distribute, perform, link, display, or in any way exploit any of the Content, in whole or in part, except as expressly permitted in these terms & conditions or with the prior written consent of Mondaq Ltd. You may not use electronic or other means to extract details or information about’s content, users or contributors in order to offer them any services or products which compete directly or indirectly with Mondaq Ltd’s services and products.


Mondaq Ltd and/or its respective suppliers make no representations about the suitability of the information contained in the documents and related graphics published on this server for any purpose. All such documents and related graphics are provided "as is" without warranty of any kind. Mondaq Ltd and/or its respective suppliers hereby disclaim all warranties and conditions with regard to this information, including all implied warranties and conditions of merchantability, fitness for a particular purpose, title and non-infringement. In no event shall Mondaq Ltd and/or its respective suppliers be liable for any special, indirect or consequential damages or any damages whatsoever resulting from loss of use, data or profits, whether in an action of contract, negligence or other tortious action, arising out of or in connection with the use or performance of information available from this server.

The documents and related graphics published on this server could include technical inaccuracies or typographical errors. Changes are periodically added to the information herein. Mondaq Ltd and/or its respective suppliers may make improvements and/or changes in the product(s) and/or the program(s) described herein at any time.


Mondaq Ltd requires you to register and provide information that personally identifies you, including what sort of information you are interested in, for three primary purposes:

  • To allow you to personalize the Mondaq websites you are visiting.
  • To enable features such as password reminder, newsletter alerts, email a colleague, and linking from Mondaq (and its affiliate sites) to your website.
  • To produce demographic feedback for our information providers who provide information free for your use.

Mondaq (and its affiliate sites) do not sell or provide your details to third parties other than information providers. The reason we provide our information providers with this information is so that they can measure the response their articles are receiving and provide you with information about their products and services.

If you do not want us to provide your name and email address you may opt out by clicking here .

If you do not wish to receive any future announcements of products and services offered by Mondaq by clicking here .

Information Collection and Use

We require site users to register with Mondaq (and its affiliate sites) to view the free information on the site. We also collect information from our users at several different points on the websites: this is so that we can customise the sites according to individual usage, provide 'session-aware' functionality, and ensure that content is acquired and developed appropriately. This gives us an overall picture of our user profiles, which in turn shows to our Editorial Contributors the type of person they are reaching by posting articles on Mondaq (and its affiliate sites) – meaning more free content for registered users.

We are only able to provide the material on the Mondaq (and its affiliate sites) site free to site visitors because we can pass on information about the pages that users are viewing and the personal information users provide to us (e.g. email addresses) to reputable contributing firms such as law firms who author those pages. We do not sell or rent information to anyone else other than the authors of those pages, who may change from time to time. Should you wish us not to disclose your details to any of these parties, please tick the box above or tick the box marked "Opt out of Registration Information Disclosure" on the Your Profile page. We and our author organisations may only contact you via email or other means if you allow us to do so. Users can opt out of contact when they register on the site, or send an email to with “no disclosure” in the subject heading

Mondaq News Alerts

In order to receive Mondaq News Alerts, users have to complete a separate registration form. This is a personalised service where users choose regions and topics of interest and we send it only to those users who have requested it. Users can stop receiving these Alerts by going to the Mondaq News Alerts page and deselecting all interest areas. In the same way users can amend their personal preferences to add or remove subject areas.


A cookie is a small text file written to a user’s hard drive that contains an identifying user number. The cookies do not contain any personal information about users. We use the cookie so users do not have to log in every time they use the service and the cookie will automatically expire if you do not visit the Mondaq website (or its affiliate sites) for 12 months. We also use the cookie to personalise a user's experience of the site (for example to show information specific to a user's region). As the Mondaq sites are fully personalised and cookies are essential to its core technology the site will function unpredictably with browsers that do not support cookies - or where cookies are disabled (in these circumstances we advise you to attempt to locate the information you require elsewhere on the web). However if you are concerned about the presence of a Mondaq cookie on your machine you can also choose to expire the cookie immediately (remove it) by selecting the 'Log Off' menu option as the last thing you do when you use the site.

Some of our business partners may use cookies on our site (for example, advertisers). However, we have no access to or control over these cookies and we are not aware of any at present that do so.

Log Files

We use IP addresses to analyse trends, administer the site, track movement, and gather broad demographic information for aggregate use. IP addresses are not linked to personally identifiable information.


This web site contains links to other sites. Please be aware that Mondaq (or its affiliate sites) are not responsible for the privacy practices of such other sites. We encourage our users to be aware when they leave our site and to read the privacy statements of these third party sites. This privacy statement applies solely to information collected by this Web site.

Surveys & Contests

From time-to-time our site requests information from users via surveys or contests. Participation in these surveys or contests is completely voluntary and the user therefore has a choice whether or not to disclose any information requested. Information requested may include contact information (such as name and delivery address), and demographic information (such as postcode, age level). Contact information will be used to notify the winners and award prizes. Survey information will be used for purposes of monitoring or improving the functionality of the site.


If a user elects to use our referral service for informing a friend about our site, we ask them for the friend’s name and email address. Mondaq stores this information and may contact the friend to invite them to register with Mondaq, but they will not be contacted more than once. The friend may contact Mondaq to request the removal of this information from our database.


This website takes every reasonable precaution to protect our users’ information. When users submit sensitive information via the website, your information is protected using firewalls and other security technology. If you have any questions about the security at our website, you can send an email to

Correcting/Updating Personal Information

If a user’s personally identifiable information changes (such as postcode), or if a user no longer desires our service, we will endeavour to provide a way to correct, update or remove that user’s personal data provided to us. This can usually be done at the “Your Profile” page or by sending an email to

Notification of Changes

If we decide to change our Terms & Conditions or Privacy Policy, we will post those changes on our site so our users are always aware of what information we collect, how we use it, and under what circumstances, if any, we disclose it. If at any point we decide to use personally identifiable information in a manner different from that stated at the time it was collected, we will notify users by way of an email. Users will have a choice as to whether or not we use their information in this different manner. We will use information in accordance with the privacy policy under which the information was collected.

How to contact Mondaq

You can contact us with comments or queries at

If for some reason you believe Mondaq Ltd. has not adhered to these principles, please notify us by e-mail at and we will use commercially reasonable efforts to determine and correct the problem promptly.