India: Start Up India

Last Updated: 4 July 2017
Article by Infini Juridique

Government of India has announced the START UP India in August 2015. Under “START UP INDIA”, the Govt. intends 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.

In order to meet the objectives of the initiative Government of India has announced the action plan that addresses all aspects of the Start UP Ecosystem.

With the action plan, the Government hopes to accelerate spreading of the Start UP Movement:

  1. From Digital/Technology sector to a wide array of sectors including agriculture, manufacturing, social sector, health care, education etc..
  2. From existing Tier 1 Cities to Tier 2 & Tier 3 cities including semi urban and rural areas.
  3. The Action Plan is divided across the following areas:

    • Simplification and Handholding
    • Funding supported incentives.
    • Industry/academia partnership and incubation

On February 17, 2016, Govt. Of India (Ministry of Commerce & Industry, Department of Industrial Policy and Promotion) issued a Notification G.S.R. 180(E) for Start Ups.

A Start Up would mean an entity incorporated or registered in India not prior to five years, with annual turnover not exceeding INR 25 crore in any preceding financial year, working towards innovation, development, deployment or commercialization for new products, processes or services driven by technology or intellectual property. Provided that such entity is not formed by splitting up, or reconstruction, of a business already in existence.

An entity shall not be deemed to be a Startup if its turnover for the previous financial years has exceeded INR 25 crore or it has completed 5 years from the date of incorporation/ registration.

Provided further that a Startup shall be eligible for tax benefits only after it has obtained certification from the Inter-Ministerial Board, setup for such purpose.

To reduce the regulatory burden on startup and for Ease of Doing Business, the Government had introduced simple and flexible simplified regulatory regime for the start-ups. Government has identified the regulatory obstacles for start-ups and has taken initiative to remove them or make it easier for compliance. Six Labor and Three Environmental laws are covered under this head for easy and convenient approval. Under the scheme the Government has allowed “self-certification”, under which Start-Ups can file complainces etc. under Self Certification process.

Furthermore, in instances of Labour Laws, no inspections will be conducted within a period of three years. With respect to Environmental Law any inspection will be made only on receipt of credible and verifiable complaint of violation, filed in writing and approved by at least one officer senior to the inspector.

Another important step under the Start-Up India scheme is to create a “Startup India Hub” with an objective to create a single point of contact for the entire start-up ecosystem. Focus of the scheme is on Young Indians by creating a conducive environment. It has been observed that Start-Ups do not reach their full potential due to limited guidance and access as well as resources.

Another important step is “Rolling-Out of Mobile App and Portal”. Realising the delays or lack of clarity in regulatory and registration process. The government has enabled start-ups to register in an easy and timely manner to reduce the delays during registration. The start-ups ecosystem in India shall provide formal platforms for Start-Ups to connect and collaborate with the ecosystem partners and the mobile app shall have backend integration with the Ministry of corporate affairs and Registrar of firms for the seamless information exchange and processing of the registration application. One can also download the digital version of the final registration certificate. Thus, your company is in your hands at all given time.

Government of India shall also provide necessary “Legal Support and Fast- tracking Patent Examination at Lower Costs”. The idea is to not only give support in the protection of Intellectual Property Rights but also to give support in every way that may be possible including providing legal advise and support.  Government of India wants to promote awareness and adoption of the Intellectual Property Rights by start-ups and facilitate them in protecting and commercialising the Intellectual Property Rights.

The government has proposed to introduce fast track examination of Patent applications and rebates in the fees. Start-ups 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 Intellectual Property Rights. For effective implementation of this scheme a panel of facilitators shall be empaneled by the Controller General of Patents, Designs and Trademarks. Furthermore, 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. Start-Ups shall be provided an 80% rebate in filing of patents with the other companies. The scheme will be launched initially on a pilot basis for one year, which may be extended upon the kind of response.

Another important step is “Relaxed Norms of Public Procurement for Startups” to provide an equal platform for start-ups with the experienced companies or entrepreneurs in the public procurement. The government central as well as state and Public Sector Undertakings have to mandatory procure at least 20% from the Micro Small and Medium Enterprise. In furtherance the start-ups shall be exempted from any criteria of prior experience or turnover but no compromise will be made on any aspect of quality or technical parameters. The Start-Ups have to demonstrate requisite quality and capability to execute the project as per the requirements of the project and must have their manufacturing unit in India.

One of the major issue with regard to doing business in India is that the Exit Scheme under the Companies Act does not allow a simple exit. Having recognized this aspect, the Government has announced  “The Faster Exit for Startups”. The government recognized that it is critical to relocate capital and resources to more productive avenues. In the case the start-ups cease to continue, a swift and simple process would be followed to wind up the Start-Ups operations. For this the government has also tabled the “Insolvency and Bankruptcy Bill 2015” before the Lok Sabha, which once passed by both the houses, shall allow a company to file Winding Up application and within a period of 90 days from making of an application for winding up on a fast track basis, an insolvency professional shall be appointed for the start-up who shall be in charge of the company for liquidating its assets and paying its creditors within six months of such appointment.

Another interesting aspect of Start-UP India is the recognition of resource and fund crunch for a Start Up. Having recognized this drawback the Government has drawn a plan for Funding Support through a Fund of Funds with a Corpus of INR 10,000 crore. Initially the government will set up a corpus of Rs.2500 crore for a year which will continue to 4 years amounting to a total corpus of 10,000 crore. The funds will be in the nature of “fund of funds” which means that it will not invest directly into the start-ups but shall participate in the captain of SEBI registered Venture Funds. The funds of funds shall contribute to a maximum of 50% of the stated daughter fund size.

The government having realized that start-ups have a blot associated with the failure of start-up enterprise in general which apprehends the creditors to invest. Therefore, “Credit Guarantee Fund for Startups” which is aimed for Debt Funding to start-ups and is to be made through Banks and other lenders to provide Venture Debts to start-ups. Credit guarantee mechanism through National Credit Guarantee Trust Company (NCGTC) and through Small Investment Development Bank of India (SIDBI) is being envisaged with the budgetary corpus of Rs.500 crore per year for the near next four years.

Another aspect of Start Up India is the “Tax Exemption on Capital Gains”. Exemption shall be given to persons who have capital gains during that year, if they have invested capital gains in the Fund of Funds recognised by the government. Investment in computer or computer software shall also be considered as purchase of ‘new assets’ in order to promote technology driven startups. The Income Tax Exemption for Start Ups is proposed for a period of three years in order to facilitate growth of business and meet the working capital requirements during the initial years of operations. Exemptions shall only be available subject to normal distribution of dividends by the startups. “Tax Exemption on Investments above Fair Market Value” is the second tax exemption.

On important step would be in “Harnessing Private Sector Expertise for Incubator Setup” to ensure operational 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. 35 new incubators in existing institutions and 35 new private sector incubators.  At the same time Government shall help in “Building Innovation Centre at National Institute”, to propel successful innovation through augmentation of incubation and Research and development efforts. Setting up  of 13 startup  centers,  for encouraging  student driven start-ups from the host Institute and also setting up scaling up 18 technology business incubators at National Institute Technologies, Indian Institute of Technologies and Indian Institute of Management as per funding model with Ministry of human Resource Development and Department of Science and Technology.

Government shall be Setting up of 7 New Research Parks Modeled on the Research Park Setup at IIT Madras. Investment to the tune of INR 100 crore each for seven new Research Park has been allotted to break down the traditional, artificial barriers of innovation through its connectivity and collaborative interaction.

Special emphasis is being given to promote Startups in Biotechnology Sector. Department of Biotechnology endeavors to scale up the number of startups in the sector by nurturing approximately 300 to 500 new startups each year to have around 2,000 start-ups by 2020. 5 new bio-clusters, 50 new Bio-Incubators, 150 Technology transfer offices and 20 Bio-Connect Offices will be set up in research Institute and universities across India.

Government has also launched Innovation Focused Programs for Students, with an objective to foster a culture of innovation in the field of science and technology amongst students. Innovation core program shall be initiated to target school kids with an outreach to 10 lakh innovations. The best hundred shortlisted Innovations shall be showcased at the Annual Festival of Innovations in the last Rashtrapati Bhawan. It also aims to set up National Initiative for Developing and Harnessing Innovations (NIDHI) through Innovation and Entrepreneurship Development Center’s IEDCs.

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.

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