Startup India – announcements of many initiatives

Action Plan on Startup India: A Brief Overview

Startup India Action Plan (“Action Plan”), launched by Prime Minister Narendra Modi on 16 January 2016, is part of a flagship initiative of the Government of India for boosting the startup ecosystem in India that will drive sustainable economic growth, generate large scale employment opportunities. It aims to accelerate spreading the startup movement in existing tier 1 cities to tier 2 / tier 3 cities, semi urban and rural areas, in a wide range of sectors, varying from digital/technology sector to agriculture, manufacturing, social sector, healthcare, education, etc. In the recent years, India has witnessed a dynamic trend of people with no or little business background emerging to be the new age entrepreneurs.  The upsurge has had a massive outreach and the impact has been the launch of the “Startup India: Stand up India” campaign, followed by the detailed 19 point Action Plan that interestingly is an unprecedented move even in comparison to other strong startup ecosystems of the world and as pointed out by Masayoshi Son, Chairman and CEO of Softbank, “this is the beginning of a Big Bang for India”.

The word ‘startup’ has been around for quite some time now and it comes as a relief that the Action Plan, for the first time, defines ‘startup’, albeit for the purpose of government schemes only. The definition reads as follows:-

“Startup means 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 of 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.

Provided also that an entity shall cease to be a Startup if its turnover for the previous financial years has exceeded INR 25crore 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 purposes.” (Emphasis supplied)

The definition is important in order to understand the eligibility criteria for the various benefits that the Action Plan talks about. However, what remains to be seen is how the definition gets formalized by way of a statute or notification and how the concerned authorities, for example the Inter-Ministerial Board, interprets “working towards innovation, development, deployment or commercialization of new products, processes or services driven by technology or intellectual property” for the purposes of certification. Usage of words such as “new” may open up dialogues on what may be considered as new and what should be the criteria for determining “new”.

Broadly, the Action Plan talks about schemes and initiatives to be undertaken in four major categories:-

(a) Ease of doing business: For easing operational aspects of the workings of a newly incorporated company

  • compliance regime based on self-certification with labour laws and environment laws;
  • no suo motu inspection with respect to labour law compliances for the first 3 years
  • only random checks in ‘white category’ startups with respect to environmental law compliances;
  • mobile app to provide on-going accessibility for registering startups, tracking the status of the registration application, filing for compliances and obtaining information, etc.;
  • legal support and fast tracking patent examinations; 80% waiver of patent filing fees;
  • relaxed norms for public procurement;
  • faster exits,
  • income tax exemption for a period of 3 years,
  • extension of capital gains tax exemption to ‘computer or computer software’)

(b) Funding: For enhancing funding support through a Fund of Funds with an initial corpus of INR 2,500 crore and a total corpus of INR 10,000 crore and through credit guarantee fund via National Credit Guarantee Trust Company/SIDBI with a budgetary corpus of INR 500 crore per year for the next four years; extension of exemption from Section 56(2)(viib) of the Income Tax Act 1961 to investments made by incubators above fair market value; seed funding to potentially successful and high growth startups;

(c)  For promoting visibility through national and international fests and encouraging innovation through national and state level awards; and

(d) Programs and Centres: For structuring and enhancing the startup ecosystem through various programs such as Atal Innovation Mission (AIM), Self-Employment and Talent Utilization (SETU), Innovation core program in schools and establishment of Startup India Hub, 500 tinkering labs, incubators, innovation centers and Research Parks.

In the inaugural speech, the Prime Minister has also made special mention of the lack of patent experts/lawyers as the patent protection remains one of the biggest concern of newly incorporated companies working in the fields of innovation and technology. As such, the Action Plan talks about fast tracking mechanisms to exclusively cater to startup patent applications in order to protect the intellectual property rights of startups at an early stage. Another key highlight of the Action Plan is the panel of facilitators and lawyers to assist startups in filing and disposal of patent applications. Government shall bear the entire fees of the facilitators for any number of patents, trademarks or designs that a startup may file.

Overall, the Action Plan goes a long way in identifying the various problems persistent in the startup ecosystem today and aims to bring thousands of entrepreneurs from across India into this discourse and force the growth of a transformed, diversified and inclusive economy.

Introduction of the Insolvency and Bankruptcy Bill, 2015 (Read more at https://novojuris.com/2015/12/28/bankruptcy-bill-2015/) and recent announcements by the Reserve Bank of India of incentives to ease business norms and drive growth in the ecosystems, which inter alia include:

  • creation of a dedicated mailbox to provide assistance and guidance to the startup sector,
  • permitting receipt of deal value on a deferred basis in case of a transfer of ownership of a startup,
  • accessing rupee loans under the External Commercial Borrowing framework with relaxations, etc., indicate the Government’s existing and ongoing commitment to actualizing the Action Plan.

However, it leaves one wanting for more answers with respect to how the various actions points will be formalized and implemented by the concerned authorities and the timelines that we are looking at, amongst other things. The nuances that may be associated with ‘simple’ form for registering startups and the practical aspects of uploading documents for registration through a Mobile App; executing faster exits in 90 days; allocating funds for the announced rebates; effective management of the Fund of Funds and strategizing rollover of its profits are some of the questions that loom large. However, ambitious times call for ambitious ventures and the Action Plan certainly has opened up a whole new horizon.

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