Startup

Startup policy implementation will be a challenge

The Startup India action plan looks good on paper, but the key obviously will be the execution. The States should also pull their weight to lend support to the Centre’s plan

The Startup India action plan has at least begun on the right note with the announcements of tax breaks, ease of regulations but the reality is that there are significant implementation challenges like use of public funds to invest in startups, definition of innovative startups itself and areas where there will be public private partnership (PPP) execution model. Further, startups in India are unlikely to flourish unless other equally important enabling factors are addressed simultaneously like the current state of physical infrastructure, interference from the tax authorities and state governments which are not in sync with the Centre’s plan.

The startup ecosystem in India is already an well established network with an overwhelming majority led by the technology sector comprising of software product firms, e-commerce entities and business to consumer (B2C) companies. All this has been achieved without much of the assistance or more importantly the interference from the various governments.

The startup action by the government is also important recognition of the fact that this segment is expected to be next biggest employment generator. Harish HV, partner, Grant Thornton India, said, “This (startups) is something that has taken off on its own. The good news is that there is a realisation within the government that it is happening and cannot ignore it anymore.”

The startup ecosystem has also been equally supported by the funding which has come into this segment which stood at $4.9 billion in 2015 as compared to a cumulative investment of $3.2 billion over the 2010-14 period. The biggest  projection on the startup segment in India is the hope that it be would be largest employment generator in the near.

As of things today, it  has already created 80,000 jobs.

The push from the government in terms of a policy statement has touched the many pain points of the entrepreneurs like ease of doing business, increasing funding measures while also ushering in new measures which will expand this ecosystem like the creation of startup hubs or flexibility in regulations on government purchases. Ravi Narayan—director, Microsoft Ventures said, “The most positive statement from Prime Minister Modi was when he indicated that the government wants to be a facilitator and let the ecosystem mentor and grow on its own. This shows that the government understands the needs of the ecosystem very well and wants to let innovation and entrepreneurial spirit guide the way rather than regulation.“

Further, Nasscom president R Chandrashekhar said, “Startup India is a reflection of young India’s aspirations. Nasscom once again reaffirms its commitment to support 10,000 technology startups and expand its network of Start-up Warehouses across the country that will nurture early stage entrepreneurship. Our ambition is to see India as a startup nation, one that has exponential growth and also enables creation of unique solutions for India’s challenges.”

The startup policy of the government has made very some key enabling provision on the finance and funding front like the creation of the R10,000 crore fund or the credit guarantee scheme which are likely to step up the flow of investments. As Shashank ND, founder and CEO, Practo, said, “This action plan primarily covers all the burning issues from finance to taxation that needs to be addressed. However, convertible note as a financial instrument is one thing that we need and I don’t think we have it right now. From finance point of view if you want startups to stop moving to foreign land then more initiatives should be introduced in the finance front.”

The registration of startup companies overseas largely due to irrational regulations has been of the major irritants for entrepreneurs and the investors, though the hope is that these would be rectified in the near future. TV Mohandas Pai, chairman, Manipal Global Education and a leading angel investor, said, “Value created in the country needs to be captured here.”

The policy has also promised that startups would be able to file their patents in a more cheaper way along with faster process. Manavjeet Singh, founder and CEO, Rubique.com, said, “In the dynamic market scenario like today where it takes few days to replicate an idea, the decision to guide and make the patent process faster is definitely going to be game changer not just in India but worldwide.”

The hopes are certainly raised though many of the suggestions put forward by various industry bodies prior to the formulation of this policy have not been taken into account. However, the startups are hopeful that better days are ahead and much more pronouncements are expected in the forthcoming Union Budget by finance minister Arun Jaitley.

As Harish of Grant Thornton said, “I would say the whole day was a signal that New India is beginning to take over from the traditional India and that should result in some interesting, exciting and energetic times.”

Startup India Action plan

* Self certification: Startups shall be allowed to self-certify compliance with 9 labour and environment laws. In case of the labour laws, no inspections will be conducted for a period of 3 years.
* Startup hub: To be created with the participation of multiple stakeholders like governments, venture capitalists, universities etc. To assist startups through their entire lifecycle.
* Mobile app: This is to facilitate easier and simple registration process. It will also provide a collaborative platform. The app shall be made available from April 1, 2016.
* Easier patent filings: The government shall bear the entire fees of the facilitators for any number of patents, trademarks or designs that a startup may file and the startups shall bear the cost of only the statutory fees payable. The scheme is being launched initially on a pilot basis for 1 year.
* Easier exit: Startups with simple debt structures or those meeting such criteria as may be specified may be wound up within a period of 90 days from making of an application for winding up on a fast track basis.
* Rs 10,000 crore fund: 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 a period 4 years. The Fund will be in the nature of Fund of Funds, which means that it will not invest directly into startups, but shall participate in the capital of SEBI registered venture funds.
* Tax exemption for three years: The profits of startup initiatives are exempted from income-tax for a period of 3 years. The exemption shall be available subject to non-distribution of dividend by the startup.

This article was published in the Financial Express, to read please click here.