Startup India – A Guide to the New Startup India Policy

start-up

India – in a glorious history exceeding 10,000 years – has been different things for different people.

For inhabitants of the Old World, it was home to the Indus Valley Civilization. For people from first millennium CE, it was the wealthiest, most populous region of the world. For people of the Hindu, Jain, Sikh, and Buddhist faiths, it’s the place their religion was born. The list is long!

But what can India be for you? Let’s consider the options:

A tourist destination? Indeed. The land of breathtaking landscapes, beautiful seasons, interesting people, and diverse cultural regions, India is a great place for a vacation.

A spiritual destination? Perhaps. The birthplace of yoga and meditation, India is a mystical land that can very well inspire the body, mind, and soul.

A startup destination? Definitely! Booming under a host of progressive, pro-industry policies backed by the union government, India is fast becoming a thriving startup nation.

The Indian startup ecosystem at a glance

Projected to have about 11,500 startups by the year 2020, India is one of the fastest growing startup ecosystems in the world. It is, in fact, home to the third largest number of startups globally — not without good reason!

The central government, led by Prime Minister Narendra Modi, places great emphasis on the country’s economic potential. Which is why it is keen on implementing new industry-friendly policies. And the Make in India initiative launched last year  which helped India surpass China and the US to become the top destination for foreign direct investment in the world — is proof that Government of India has mastered the art.

The latest in these progressive, pro-industry policies and initiatives is the Prime Minister’s pet project ‘Startup India’. And if history is any indication, this initiative will do for entrepreneurship what the Make in India initiative did for manufacturing.

Understanding Startup India

Launched on January 16, 2016 by PM Modi, Startup India is a union government initiative  to boost entrepreneurship and assist startups with job creation. It aims to ease the process of setting up startups in the nation by – 1) limiting the role and therefore, the power of states in the policy sector, 2) eradicating “license raj” by easing project licenses, clearances, foreign investment proposals, and the accompanying red tape, and 3) boosting bank financing for startups.

Startup India also aims to promote entrepreneurship among women, as well as the Scheduled Castes and Tribes of India. It was first announced by PM Modi – who spoke about the ambitious initiative while addressing the nation on Independence Day – and launched later by the Finance Minister ArunJaitley.

VigyanBhavan, the principal convention center of the Government of India was the site of the historic inauguration. It hosted over 40 top dignitaries from the entrepreneurship and investment sectors, including SoftBank CEO Masayoshi Son, Uber founder Travis Kalanick, WeWork CEO Adam Nuemann, and Flipkart founder Sachin Bansal, as special guests. PM Modi concluded the event, easily the largest ever startup conference in the nation, with a detailed action plan, where he unfolded his dream project for the world to see.

Here are the top-three things you need to know:

  1. Exactly what is a ‘startup’?

In purview of the Startup India policy, the Government of India defines a ‘startup’ as any entity that was founded, and is headquartered in India; subject to two additional conditions: 1) The entity was founded less than five years ago. 2) Its annual turnover is less than INR 25 crore (USD 3.7 million).

  1. What are the ‘benefits’ to startups?

The Startup India action plan includes an array of initiatives directed towards a single end — making it easy for innovation-minded people from across the globe to turn their startup dreams into a reality. Rather, a successful reality.

The following benefits stand out the most:

  • Income and capital gains tax exemptions

Startups will be exempted from taxes on income for the first three years of operation if they do not distribute dividends for those years. In addition, taxes on capital gains —  that have been invested in venture funds registered with the Securities and Exchange Board of India (SEBI) — will not be levied.

  • Swifter company registrations

Startups will be able to complete registration formalities within a day, with a one-page company registration form. A dedicated portal and mobile application for one-point registration is to be launched on April 1,2016 to simplify the process.

  • Faster patent approvals

Startups will be able to exert their intellectual property rights with ease and speed. The union government will simplify the Intellectual Property Regime and will also bear the cost of registering trademarks, designs, and patents. In addition, it will fast-track patent applications for faster approvals.

  • Funding from dedicated corpus fund

Startups will be able to raise funds from a dedicated startup-funding body, which will be set up with an initial corpus of INR 2,500 crore and gradually move up to INR 10,000 crore by the end of four years. The funding body will be managed by a team of leading professionals from successful startups and academia, instead of public servants.

  • Debt funding from formal banking institutions

Startups can raise debt funding directly through recognized banking institutions via the National Credit Guarantee Trust Company (NCGTC). A credit guarantee scheme will be set in place to allow access to the NCGTC and the Small Industries Development Bank of India, for the same. Funds of about INR 500 crores will be available for startups each year.

  • Freedom from regulatory and compliance inspections

Startups will be able to self-certify their compliance on key labor and environment laws with the help of a new startup mobile application. In addition, they will be exempted from inspections for  a period of three years.

  • Relaxation in the procurement policy

Startups that have their own manufacturing units in India will enjoy lenient procurement policies. They will be exempted from the strict “prior experience and/or turnover” criteria by central and state governments as well as PSUs.

  • Availability of new innovation centers

Startups will be able to avail 31 new state-of-the-art innovation centers, seven new research parks, and five bio-clusters, which will be set up under the Atal Innovation mission of Startup India. In addition, a host of new sector-specific incubators will be set up, along with 500 ‘Tinkering Labs’, and a total of seven entrepreneurship awards.

  • Cleaner exit

Startups will be able to make an exit within three months (90 days), using provisions from Government of India’s new bankruptcy bill.

And these mind you, are just nine of the multiple benefits in store for startups in India.

  1. What else is the government doing to help startups in India?

The Ministry of Human Resource Development in conjunction with the Department of Science and Technology is working to establish over 75 hubs for startup support in the premier educational institutions of the India. These include the different National Institutes of Technology, the Indian Institutes of Information Technology, the Indian Institutes of Science Education and Research, and the National Institutes of Pharmaceutical Education and Research.

In addition, India’s apex bank, the Reserve Bank of India (RBI), is taking steps to improve the ‘ease of doing business’ in the nation. Led by former chief economist of the International Monetary Fund, Dr Raghuram Rajan, RBI is optimizing lending to startups, contributing significantly to India’s startup ecosystem.

What’s noteworthy is that the Startup India initiative has also spurred individual states to up their game when it comes to supporting entrepreneurship. State governments are on their path to rolling out state-specific initiatives to boost economic growth, which in turn makes the state more lucrative for startups. For instance, the Government of Karnataka has launched ‘Invest in Karnataka’, and the Government of Kerala is working on its ‘Kerala IT Mission’.

Setting up your startup in India — the fine print

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