During the 2015 Independence Day celebrations, PM Narendra Modi had announced the iconic Startup India Initiative, which would provide a range of benefits to new enterprises. Now, just five months down the line, the PM has unveiled the much-awaited Startup Action Plan. The following is an overview of the key announcements with regard to the plan.
Investment Fund to back Start-ups
The government has made a commitment to set up a fund with an initial capital of Rs. 2,500 crores and a total capital of Rs. 10,000 crores over the next four years, which is earmarked to support start-ups. The fund will be managed by a board comprising leading individuals from successful start-ups, academia and industry bodies. The fund is expected to invest in SEBI-registered initiatives in various sectors including agriculture, education, manufacturing and health.
Credit Guarantee Mechanism
Start-ups are also expected to benefit from a credit guarantee mechanism to provide them with access to debt funding. This would be achieved through the NCGTC (National Credit Guarantee Trust Company)/SIDBI, which would feature funds valued at Rs. 500 Crore over the next 4 years.
To facilitate the growth of start-ups and help retain capital, the Startup Action Plan also features a range of tax exemptions. Start-ups will be provided an Income Tax exemption of up to 3 years, provided no dividend is distributed by the company during that time. Additionally, in an effort to augment the funds available to alternative investment funds and various venture capitals, capital gains obtained from SEBI-registered venture funds would also be tax exempt.
Simplified Registration and Regulatory Norms
To facilitate the entry of new companies, the government is also committed to launch a mobile app that allows registration of the new enterprise within 24 hours. The proposed portal is expected to serve as a single point of contact for startup-related registrations, clearances and approvals. Additionally, the portal will also feature links that enable new entrants to apply for various schemes featured in the Start-up India Action Plan.
New enterprises will be allowed to self-certify compliance on 9 separate environments and labor laws via the start-up mobile app. These companies will be exempt from labor law-related inspections for a three-year period.
Fast-track Patent Filing
The current pilot plan, which will be reassessed in 2017, entails the Central Government bearing the cost of designs, trademarks and patents for a new company registered with this action plan. Additionally, a rebate of 80% will be also provided by the government to encourage creation and protection of Intellectual Property (IP) created by startups.
Reduced Exit Barriers
Keeping in mind that exit barriers are as much of a disincentive for new enterprises as entry barriers, the new plan has also incorporated features to speed up the exit procedures for a venture. The winding up process can now be completed in 90 days from the day the application is submitted as per the 2015 Insolvency and Bankruptcy bill. The voluntary business closure process included in this bill also allows for the concept of limited liability.
Atal Innovation Mission and Student-focused Programs
The proposed Atal Innovation Mission would establish sector-specific incubators along with 500 “Tinkering Labs” that are designed to facilitate pre-incubation training as well as provide seed funds for high-growth start-ups. Those finding low-cost solutions for the country can win any awards at the national, state or union territory level.
The government has also introduced a student-focused program that aims to source 10 lakh innovations from 5 lakh schools across the country. The top 100 entries among these would be featured at the Annual Festival of Innovations to be held at Rashtrapati Bhavan. Additionally, a grand challenge program, NIDHI (National Initiative for Developing and Harnessing Innovations), is also being instituted through IEDCs (Innovation and Entrepreneurship Development Centres), that would offer a prize of Rs. 20 Lakhs to the top twenty student innovations that are selected. Moreover, a joint MHRD-DST scheme titled “Uchhattar Avishkar Yojana” has also been introduced with an annual budget of Rs.250 Crore to facilitate high quality research among IIT students.
Other Aspects of the Start-up India Plan
An annual incubator challenge has been proposed that would award Rs.10 Crore to the top 10 incubators across the country each year. The prize money would provide financial assistance to help improve these incubators further. A relaxation in the norms of public procurement has also been proposed, this exempts start-ups in the manufacturing sector from the “prior experience/turnover” criteria as long as the company’s manufacturing facility is located in India and has the capabilities to fulfill project requirements.