Startup India

Startup India

• Startup India is a flagship initiative launched by the Government of India on 16^th January, 2016 to build a strong eco-system for nurturing innovation and startups in the country which will drive economic growth and generate large scale employment opportunities. 
  • Startup India was a campaign that was first addressed by the PM Narendra Modi on 15th August 2015 at Red Fort, New Delhi.
    • This campaign was introduced under the Government of India as an initiative to develop over 75 startup support hubs in the country.
• The Government through this initiative aims to empower startups to grow through innovation and design. 
• The Standup India scheme was launched on 5^th April, 2016 to facilitate bank loans from Scheduled Commercial Banks (SCBs) between Rs.10 lakh to Rs.1 Crore to at least one Scheduled Caste (SC) or Scheduled Tribe (ST) and one woman per bank branch for setting up a greenfield enterprise in trading, services or manufacturing sector. 
  • The scheme is expected to benefit at least 2.5 lakh borrowers.
• The Startup India scheme is based majorly on three pillars which are mentioned below:
  • Providing funding support and incentives to the various start-ups of the country.
  • To provide Industry-Academia Partnership and Incubation.
  • Simplification and Handholding.
• Organized by the Department for promotion of industry and internal trade, the major objective of Startup India is to discard some of the restrictive States Government policies which include:
  • License Raj
  • Land Permissions
  • Foreign Investment Proposals
  • Environmental Clearances
• The government has been working towards recognising the real potential of startups operating across diverse segments.
• The govt’s focus has been on three C’s – capital, courage and connections – which Prime Minister Modi describes as the main pre-requisites for setting up a business.
• Due to this, there has been a significant rise in entrepreneurs, particularly from Tier-2 and Tier-3 cities.
• The participation of women has also increased under the Startup India programme.

Definition of a Startup

• For government purposes, an entity is classified as a Startup by DPIIT if it meets the following criteria:
  • It must be incorporated as a private limited company under the Companies Act 2013, registered as a partnership firm under the Partnership Act 1932, or be a limited liability partnership under the Limited Liability Partnership Act 2008 in India.
  • Such an entity is considered a Startup for a maximum of 10 years from its registration date.
  • Furthermore, the entity’s annual turnover should be at most Rs 100 crore in any financial year following its registration.
  • Startups should be focused on innovative product or service development or improvement, possess a scalable business model, and have the potential for significant wealth creation or employment generation.
• It’s important to note that entities created by splitting or restructuring existing businesses are not classified as Startups.

Registration for Startup India

• A person must follow the below-mentioned steps that are important for the successful registration of their business under the Startup India scheme:
  • A person should incorporate their business first either as a Private Limited Company or as a Limited Liability Partnership or as a Partnership Firm along with obtaining the certificate of Incorporation, PAN, and other required compliances.
  • A person needs to log in to the official website of Startup India where he/she has to fill all the essential details of the business in the registration form and upload the required documents.
  • A letter of recommendation, Incorporation/Registration Certificate, and a brief description of the business are some of the essential documents required for the registration purpose.
  • Since the start-ups are exempted from income tax benefits, therefore, they must be recognized by the Department of Industrial Policy and Promotion (DIPP) before availing these benefits. Also, they should be certified by the Inter-Ministerial Board (IMB) to be eligible for IPR related benefits.
  • After successful registration and verification of the documents, you will be immediately provided with a recognition number for your startup along with a certificate of recognition.

Startup India Benefits

• After the launch of the Startup India scheme, a new program was launched by the government named the I-MADE program which focused on helping the Indian entrepreneurs in building 1 million mobile app start-ups.
• The government of India had also launched the Pradhan Mantri Mudra Yojana which aimed to provide financial supports to entrepreneurs from low socioeconomic backgrounds through low-interest rate loans.
• Some of the key benefits of Startup India are as follows:
  • To reduce the patent registration fees.
  • Improvement of the Bankruptcy Code ensuring a 90-day exit window.
  • To provide freedom from mystifying inspections and capital gain tax for the first 3 years of operation.
  • To create an innovation hub under the Atal Innovation Mission.
  • Targeting 5 lakh schools along with the involvement of 10 lakh children in innovation-related programs.
  • To develop new schemes that will provide IPR protection to startup firms.
  • To encourage entrepreneurship throughout the country.
  • To promote India as a start-up hub across the world.

Startup Action Plan

• The Action Plan proposes a 19-point action list which will enable setting up of incubation centers, easier patent filing, tax exemption on profits, setting up a Rs.10,000 crore corpus fund, ease of setting-up of business, a faster exit mechanism, among others.
  1. Compliance regime based on self certification: This self-certification will apply to laws like payment of gratuity, contract labour, employees provident fund, water and air pollution acts.
  2. Startup India hub: A startup India hub will be created as a single point of contact for the entire startup ecosystem to enable knowledge exchange and access to funding.
  3. Simplifying the startup process: A startup will be to able to set up by just filling up a short form through a mobile app and online portal. A mobile app will be launched on April 1 through which startups can be registered in a day. There will also be a portal for clearances, approvals and registrations.
  4. Patent protection: Government will promote awareness and adoption of Intellectual Property Rights (IPRs) by startups and help them protect and commercialise IPRs.
  5. Funds of funds with a corpus of Rs 10,000 crore: In order to provide funding support to startups, the 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 four years. The fund would be managed by private professionals drawn from the industry while LIC will be a co-investor in the fund.
  6. Credit Guarantee Fund: The credit guarantee fund for start-ups would help flow of venture debt from the banking system to start-ups by standing guarantee against risks. A National Credit Guarantee Trust Company is being envisaged with a budgetary allocation of Rs 500 crore per year for the next four years.
  7. Exemption from Capital Gains Tax: Currently, investments by venture capital funds in startups are exempt from this law. Now, the same is being extended to investments made by incubators in startups.
  8. Income Tax exemption for startups: Income tax exemption to startups announced for three years.
  9. Tax exemption on investments above Fair Market Value.
  10. Startup fests: Innovation core programs for students in 5 lakh schools. There will also be an annual incubator grand challenge to create world class incubators.
  11. Launch of Atal Innovation Mission: Atal Innovation Mission started to give an impetus to innovation and encourage the talent among the people.
  12. Setting up of 35 new incubators in institutions: PPP model being considered for 35 new incubators, 31 innovation centres at national institutes.
  13. Setting up of 7 new research parks: Government shall set up seven new research parks – six in IITs, one in IISc with an initial investment of Rs 100 crore each.
  14. Promote entrepreneurship in biotechnology: Five new bio clusters, 50 new bio incubators, 150 technology transfer offices and 20 bio connect offices will be established.
  15. Innovation focused programmes for students: There will be innovation core programs for students in 5 lakh schools.
  16. Panel of facilitators to provide legal support and assist in filing of patent application.
  17. 80 per cent rebate on filing patent applications by startups.
  18. Relaxed norms of public procurement for startups.
  19. Faster exits for startups.

Challenges Faced by Indian Startups

• Funding Challenges:
  • Indian startups encounter difficulties in securing adequate funding for their ventures. Limited access to capital inhibits their growth potential and hampers innovation. Startups face challenges in attracting investors and obtaining venture capital due to various factors such as risk aversion, uncertain market conditions, and lack of investor confidence.
• Revenue Generation Struggles:
  • Many startups face challenges in generating sustainable revenues. They often struggle to find viable business models, monetize their products or services, and achieve profitability. Limited market reach, competition from established players, and insufficient customer acquisition pose additional hurdles.
• Lack of Supportive Infrastructure:
  • The absence of a robust infrastructure ecosystem can impede the growth of startups.
  • Challenges include inadequate physical infrastructure, limited access to technological resources, and a dearth of incubation centers, mentorship programs, and networking opportunities. Startups require supportive environments to thrive and access necessary resources, expertise, and guidance.
• Regulatory Environment and Tax Structures:
  • Startups in India face regulatory hurdles and complex tax structures.
  • Cumbersome compliance processes, bureaucratic red tape, and ambiguous regulations create obstacles for startups. Taxation complexities can add to the administrative burden and impact profitability.

Government Measures & Initiatives to Promote Startup Culture in the Country

• As part of the “Make in India” initiative, the government proposes to hold one  Start-Up fest at the national level annually to enable all the stakeholders of the Start-up ecosystem to come together on one platform.
• Launch of Atal Innovation Mission (AIM) – to promote Entrepreneurship through Self-Employment and Talent Utilization (SETU), wherein innovators would be supported and mentored to become successful entrepreneurs. It also provides a platform where innovative ideas are generated.
• Incubator set up by PPP – To ensure professional management of Government-sponsored or funded incubators, the government will create a policy and framework for setting-up of incubators across the country in public-private partnerships. The incubator shall be managed and operated by the private sector.
  • 35 new incubators in existing institutions. Funding support of 40% shall be provided by the Central Government, 40% funding by the respective State Government and 20% funding by the private sector for establishment of new incubators.
  • 35 new private sector incubators. A grant of 50% (subject to a maximum of INR 10 crore) shall be provided by Central Government for incubators established by the private sector in existing institutions.
• A Startup India Seed Fund Scheme has been implemented with effect from April 1, 2021. The scheme aims to provide financial assistance to startups for proof of concept, prototype development, product trials, market entry and commercialisation.
• National Startup Awards: It seeks to recognize and reward outstanding startups and ecosystem enablers that are contributing to economic dynamism by spurring innovation and injecting competition.
• States Startup Ranking: The States’ Startup Ranking is an annual capacity building exercise which has been developed with the objective to build a conducive startup ecosystem across the country, through sustained efforts of States and Union Territories.
• SCO Startup Forum: The first-ever Shanghai Cooperation Organisation (SCO) Startup Forum was launched in October 2020 to develop and improve startup ecosystems collectively.
• Prarambh: The ‘Prarambh’ Summit aims to provide a platform to startups and young minds from around the world to come up with new ideas, innovation and invention.
• MAARG: The MAARG mentorship platform aims at facilitating intelligent matchmaking between mentors & startups across varied sectors at scale.
• National Initiative for Developing and Harnessing Innovations (NIDHI)
• Startup India Action Plan (SIAP)
• Ranking of States on Support to Startup Ecosystems (RSSSE)
• PMMY (Pradhan Mantri Mudra Yojana)

Scenario of the Startup Ecosystem in India

• India has emerged as the 3^rd largest ecosystem for startups globally as of 31st May 2023. India ranks 2^nd in innovation quality with top positions in the quality of scientific publications and the quality of its universities among middle-income economies.
• Indian Startup Ecosystem has seen exponential growth in past few years (2015-2022):
  • 15X increase in the total funding of startups
  • 9X increase in the number of investors
  • 7X increase in the number of incubators
• As of May 2023, India is home to 108 Unicorns with a total valuation of USD 340.80 Bn.
  • Out of the total number of unicorns, 44 unicorns were born in 2021 and 21 unicorns were born in 2022.

States’ Startup Ranking

• The States’ Startup Ranking is a yearly capacity building exercise created and released by DPIIT that evaluates all of India’s states and Union Territories on their efforts to build an ecosystem conducive to startup growth.
• States’ Startup Ranking was launched in February 2018 to achieve the vision of building a robust startup ecosystem in the country.
• It aims to evaluate the Indian startup landscape through the eyes of state policy intervention and identify state practices that accelerate ecosystem growth and development.
• The states ranking has led each state to have dedicated startup policies and through annual rankings, it tracks the evolution of these policies and the overall efforts of states in ecosystem building.
• Objectives:
  • Help bring to the fore progress made by the States/ UTs for promoting the Startup ecosystem.
  • Foster competitiveness & propel the States/ UTs to work proactively.
  • Facilitate States/ UTs to identify, learn and replicate good practices.
• Classification: States and Union Territories are classified into 5 Categories:
  • Best Performers
  • Top Performers
  • Leaders
  • Aspiring Leaders
  • Emerging Start-up Ecosystems.
    • Note: The ‘Beginner list’ was part of earlier rankings but has been discontinued since 2019.

States’ Startup Ranking 2022 (4^th Edition)

• States and UTs were divided into two categories:
  • Category A (Population> 1 crore) and Category B (Population< 1 crore)
• 7 broad Reform Areas:
  • The participants were evaluated across 7 broad Reform Areas consisting of 25 Action Points such as:
    • Institutional Support
    • Fostering Innovation and Entrepreneurship
    • Access to Market
    • Incubation and Mentorship support
    • Funding Support
    • Capacity building of enablers
    • Roadmap to a sustainable future.
  • 15% of the total scores were awarded based on 10,000+ survey responses collected in 9 languages (telephonic and web-based).