Tuesday, 2 February 2016

Startup India – Stand Up India : Key Highlights

The launch of Startup India Stand up India has been done with the usual fanfare, pomp and splendor associated with the Prime Minister’s penchant for high visibility, high impact shows. What is commendable is not just the diversity of players invited to speak but also the depth of discussions and inputs gathering that has gone into this exercise. The Prime Minister seems to acutely aware of the reality that the lesser a government meddles with an industry the more it is likely to thrive and prosper. Some of the measures detailed out are certainly aimed at making the government’s interference negligible. While a clearer picture will evolve in next few weeks, the highlight from the PM’s speech and subsequent releases indicate the following broad and sweeping measures that have been announced to make Startups a force to reckon with in the Indian economy.

(*)  Compliance regime based on self-certification regime :  An important step taken is to to reduce regulatory burden for Startups. They  shall be allowed to self-certify for 
labor and environment laws compliance. In case of labor laws, no inspection will be conducted for three years.
(*) Creation of a Startup India hub :  This seems to be a pre-cursor to creating a Single window,single umbrella solution for Startups. It will be single-point of contact so that hand holding is likely to be easier since most laws have been designed with large companies in mind and this move helps recognizing the special business needs of Startups.
(*)  Simplification is the new Mantra – A startup will be to able to set up shop by just filling up a short form through a mobile app and online portal that will be launched in April. Once this comes in it is going to push India’s ranking in the Ease-of-doing-business pecking order for sure.

(*)  Protecting IP: Patent protection is important and PM Modi said patent protection and IP rights are a ‘punji’or ‘prime asset’ and hence a major concern for Indian Startups. The government will make IPR procedure transparent for Startups.
(*) Rebate of Fees: 80% rebate on filing patent applications by Startups is a big move since protecting IPs should not become prohibitively expensive. This move will enable Startups to reduce costs in their crucial formative years. The bigger objective that helps India move ahead in the number of patents filed every year also helps Startups quantify their assets via legal provisions of a patent. It perhaps reflects the PM’s confidence in the Startup founders of the country to come up with solutions that will solve major issues facing the people. The government certainly does not want to make money from this avenue.  
(*) Public procurement for Startups : It would be a big fillip for Startups if their output can be bought by government since channeling of government funds for businesses has been a big trigger in the advanced economies too. The fact that the government has announced relaxed norms for Public procurement means there is  big market for Startups that just opened up for them. Startups (in the manufacturing sector) shall be exempted from the criteria of prior ‘experience/turnover’ without any relaxation in quality standards or technical parameters. This is an area that will have to be watched closely because of the propensity of vested interests to take disadvantage of a good scheme.

(*) Faster exits for Startups : The government is cognizant that not all Startups will become successful and hence a painful long drawn out winding down process may make it unattractive for Startups. To make it easier for startups to exit, provision for fast-tracking closure of businesses have been included in ‘The insolvency and 
Bankruptcy  Bill 2015’. Startups with simple debt structures may be wound up within a period of 90 days from making of an application for winding up on a fast-track basis. The PM was candid about the Parliament logjam and the delay one can expect before the bill becomes the law.
(*) The Government as a VC  perhaps : The government has mooted a Funds of funds with a corpus of Rs 10,000 crore to provide funding support for development and growth of innovation driven enterprises, Government will set up a fund with an initial corpus of Rs 2,500 crore and a total corpus of Rs 10,000 crore over a period of 4 years.
(*) Credit Guarantee Fund has been mooted so that entrepreneurship can be sustained through credit to innovators across all sections of society. This will be an important cash flow support for Startups. Credit guarantee mechanism through National Credit Guarantee Trust Company/SIDBI shall be rolled out with a budgetary corpus of Rs 500 cr per year for the next four years.

(*) Exemption from Capital Gains Tax – Exemptions shall be given in case capital gains are invested in the fund of funds recognized by the government. In addition, existing capital gain tax exemption for investment in newly formed MSMEs by individuals shall be extended to all Startups.

(*) Tax exemption for Startups –All Startups set up after April 1,2016, shall be exempted from income-tax for a period of three years. One could also argue that the first three years are low revenue years in an ycase and a longer window would have helped the Startups better but it is certainly a right start in the right direction.

(*) The government has announces the Atal Innovation Mission to provide a platform for  showcasing innovation and providing a collaboration platform. This encompasses setting up of all kinds of support mechanisms for Entrepreneurs in form of promotion, training, incubation 
facilitate and Institution of innovation awards (three per state/UT) and three at national level. Launch of Grand Innovation Challenge Awards for finding low cost solution to India’s pressing and intractable problems

(*) Big commitment for setting up of 35 new incubators in institutions – Funding support of 40% (subject to a maximum of Rs 10 crore) shall be provided by central government for establishment of new incubators in existing institutions for which 40% funding by the respective state government and 20% funding by the private sector has been committed.
(*) The Government has announced the setting up of 7 new research parks modeled on the research park at IIT Madras – Government shall set up seven new research parks – six in IITs, one in IISc with an initial investment of Rs 100 crore each. These parks shall enable companies with a research focus to set up base and leverage the expertise of academic/research institution. 31 centres of innovation, 13 Startup centers and 18 technology business incubators in national institutions will be established. This is going to take some time but this is serious commitment to create an infrastructure worthy of a country like India

(*) Promoting entrepreneurship in biotechnology  seems to be a big priority for the Government .Five new bio clusters, 50 new bio incubators, 150 technology transfer offices and 20 bio connect offices will be established.

(*) The government seems to have acknowledged that it is important to catch them young. It has announced Innovation focused programmes for students .Innovation core program shall be initiated to target school kids with an outreach to 10 lakh innovations from five lakh schools. A Grand Challenge Program (National Initiative for Developing and Harnessing Innovations) to support young minds and award Rs 10 lakhs to 20 student innovations from Innovation and Entrepreneurship Development Centres has been mooted. Uchhattar Avishkar Yojana has earmarked Rs 250 crore per annum towards fostering ‘very high quality’ research amongst IIT students.

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