STARTUP INDIA ACTION PLAN 2017
Posted by admin on 08 April 2017
INTRODUCTION OF STARTUP INDIA ACTION PLAN IN INDIA :-
Startup India campaign is based on an action plan aimed at promoting bank financing for start-up ventures to boost entrepreneurship and encourage start ups with jobs creation. The campaign was first announced by Prime Minister Narendra Modi in his 15 August 2015 address from the Red Fort.
It is focused on to restrict role of States in policy domain and to get rid of "license raj" and hindrances like in land permissions, foreign investment proposal, environmental clearances. It was organized by Department of Industrial Policy and Promotion (DIPP).
On 16th Jan 2016, Prime Minister Mr. Narendra Modi announced bunch of benefits and schemes to promote start-up ecosystem in India. The event was called ‘Startup India, Standup India.”It has immense importance because, for starters, it was the first of its kind dialogue between India’s startup community and the government. In order to meet the objectives of the initiative, Government of India announced an Action Plan that addresses all aspects of the Startup ecosystem.
A Gist of Startup Definition as per Startup India Action Plan is given in brief as follows :-
Conditions for taking benefits of Startup Scheme:
1. It must be an entity registered/incorporated as a:
- Private Limited Company under the Companies Act, 2013; or
- Registered Partnership firm under the Indian Partnership Act, 1932; or
- Limited Liability Partnership under the Limited Liability Partnership Act, 2008.
2. Five years must not had elapsed from the date of incorporation/registration.
3. Annual turnover (as defined in the Companies Act, 2013) in any preceding financial year must not exceed Rs. 25 crores.
4. Startup must be working towards innovation, development, deployment or commercialization of new products, processes or services driven by technology or intellectual property.
5. The Startup must aim to develop and commercialize:
- a new product or service or process; or
- a significantly improved existing product or service or process, that will create or add value for customers or workflow.
6. The Startup must not merely be engaged in:
- developing products or services or processes which do not have potential for commercialization; or
- undifferentiated products or services or processes; or
- products or services or processes with no or limited incremental value for customers or workflow
7. The Startup must not be formed by splitting up, or reconstruction, of a business already in existence.
8. The Startup has obtained certification from the Inter-Ministerial Board, setup by DIPP to validate the innovative nature of the business and
- be supported by a recommendation (with regard to innovative nature of business), in a format specified by DIPP, from an Incubator established in a post-graduate college in India; or
- be supported by an incubator which is funded (in relation to the project) from GoI as part of any specified scheme to promote innovation; or
- be supported by a recommendation (with regard to innovative nature of business), in a format specified by DIPP, from an Incubator recognized by GoI; or
- be funded by an Incubation Fund/Angel Fund/ Private Equity Fund/ Accelerator/Angel Network duly registered with SEBI* that endorses innovative nature of the business; or
- be funded by GoI as part of any specified scheme to promote innovation; or
- have a patent granted by the Indian Patent and Trademark Office in areas affiliated with the nature of business being promoted.
- DIPP may publish a ‘negative’ list of funds which are not eligible for this initiative.
From providing tax exemption to start-ups to setting up a corpus funds to enable the new firm start business with ease, Prime Minister Narendra Modi unveiled an array of incentives while kick-starting his pet project: Start-Up India.
Some of the key terms used in definition are further clarified as follows:
The word “Entity” means and includes Private Limited Company (under The Companies Act, 2013); or
Registered Partnership Firm (under The Indian Partnership Act, 1932); or
Limited Liability Partnership (under The Limited Liability Partnership Act, 2008).
Following businesses are to be included in the definition which aims to develop and commercialize :
- A new product or service or process; or
- A significantly improved existing product or service or process that will create or add value for customers or workflow.
- The mere act of developing products or services or processes which do not have potential for commercialization.
Startups Eligible for Startup India Incentives :
As per Startup India Action Plan 2016 only Private Limited Companies, Limited Liability Partnerships and Registered Partnerships are eligible for the Government Schemes.
The Action Plan is divided across the following areas:
• Simplification and Handholding
• Funding Support and Incentives
• Industry-Academia Partnership and Incubation
The above given areas are further divided into 19 categories, which are explained below in brief :-
SIMPLIFICATION AND HANDHOLDING
1. Compliance Regime based on Self-Certification :-
Objective is to reduce the regulatory burden on Startups thereby allowing them to focus on their core business and keep compliance cost low.
Regulatory formalities requiring compliance with various labour and environment laws are time consuming and difficult in nature.
In order to make compliance for Startups friendly and flexible, simplifications are required in the regulatory regime.
Accordingly, the process of conducting inspections shall be made more meaningful and simple. Startups shall be allowed to self-certify compliance (through the Startup mobile app) with 9 labour and environment laws.
In case of the labour laws, no inspections will be conducted for a period of 3 years. Startups may be inspected on receipt of credible and verifiable complaint of violation, filed in writing and approved by at least one level senior to the inspecting officer.
In case of environment laws, Startups which fall under the ‘white category’ (as defined by the Central Pollution Control Board (CPCB)) would be able to self-certify compliance and only random checks would be carried out in such cases.
2. Startup India Hub :-
Its Objective is to create a single point of contact for the entire Startup ecosystem and enable knowledge exchange and access to funding.
An all-India hub will be created as a single contact point for start-up foundations in India, which will help the entrepreneurs to exchange knowledge and access financial aid.
The Government of India has taken various measures to improve the ease of doing business and is also building an exciting and enabling environment for these Startups, with the launch of the “Startup India” movement.
The “Startup India Hub” will be a key stakeholder in this vibrant ecosystem.
3. Rollout of Mobile App and Portal :-
Objective is to serve as the single platform for Startups for interacting with Government and Regulatory Institutions for all business needs and information exchange among various stakeholders
An online portal, in the shape of a mobile application, was launched on April 1, 2016to serve as the single platform for Startups for interacting with Government and Regulatory Institutions for all business needs and information exchange among various stakeholders.
Startups often suffer from the uncertainty regarding the exact regulatory requirements to set up its operations. In order to ensure that such information is readily available, it is intended that a checklist of required licenses covering labour licensing, environmental clearances etc. be made available.
A Mobile App provide accessibility to its users to following benefits :
- Registering Startups with Ministry of Corporate Affairs and Registrar of Firms.
- Tracking the status of the registration application.
- Filing for compliances and obtaining information on various clearances/ approvals/ registrations required.
- Collaborating with various Startup ecosystem partners (venture funds, incubators, academia, mentors etc).
- Applying for various schemes being undertaken under the Startup India Action Plan.
The App shall be made available from April 01, 2016 on all leading mobile/ smart devices’
platforms. The Startup portal shall have similar functionalities (being offered through the mobile
app) using a richer web-based User Interface.
4. Legal Support and Fast-tracking Patent Examination at Lower Costs :-
Objective is to promote awareness and adoption of IPRs by Startups and facilitate them in protecting and commercializing the IPRs by providing access to high quality Intellectual Property services and resources, including fast-track examination of patent applications and rebate in fees.
Various measures being taken in this regard include:
- Fast-tracking of Startup patent applications
- Panel of facilitators to assist in filing of IP applications
- Government to bear facilitation cost
- Rebate on filing of application
A fast-track system for patent examination at lower costs is being conceptualized by the central government. The system will promote awareness and adoption of the Intellectual Property Rights (IPRs) by the start-up foundations.
The scheme for Startup Intellectual Property Protection (SIPP) shall facilitate filing of Patents, Trademarks and Designs by innovative Startups.
5. Relaxed Norms of Public Procurement for Startups :-
To provide an equal platform to Startups (in the manufacturing sector) vis-à-vis the experienced entrepreneurs/ companies in public procurement.
Typically, whenever a tender is floated by a Government entity or by a PSU, very often the eligibility condition specifies either “prior experience” or “prior turnover”. Such a stipulation prohibits/ impedes Startups from participating in such tenders.
At present, effective April 1, 2015 Central Government, State Government and PSUs have to mandatorily procure at least 20% from the Micro Small and Medium Enterprise (MSME).
In order to promote Startups, Government shall exempt Startups (in the manufacturing sector) from the criteria of “prior experience/ turnover” without any relaxation in quality standards or technical parameters.
6. Faster Exit for Startups :-
Its Objective is to make it easier for Startups to wind up operations.
In the event of a business failure, it is critical to reallocate capital and resources to more productive avenues for which a swift and simple process has been proposed for Startups to wind-up operations. This will promote entrepreneurs to experiment with new and innovative ideas, without having the fear of facing a complex and long-drawn exit process where their capital remain interminably stuck.
The Insolvency and Bankruptcy Bill 2015 (“IBB”), tabled in the Lok Sabha in December 2015 has provisions for the fast track and / or voluntary closure of businesses. In terms of the IBB, 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.
On appointment of the insolvency professional, the liquidator shall be responsible for the swift closure of the business, sale of assets and repayment of creditors in accordance with the distribution waterfall set out in the IBB.
FUNDING SUPPORT AND INCENTIVES
7. Providing Funding Support through a ‘Fund of Funds’ with a Corpus of INR 10,000 crore :-
The Objective to form Fund of Funds is to provide funding support for development and growth of innovation driven enterprises
One of key challenges faced by Startups in India has been access to finance. Besides, the high risk nature of Startups wherein a significant percentage fail to take-off, hampers their investment attractiveness.
Government will set up a fund with an initial corpus of INR 2,500 crore and a total corpus of INR 10,000 crore over a period 4 years (i.e. INR 2,500 crore per year).
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.
8. Credit Guarantee Fund for Startups :-
This fund is created to catalyze entrepreneurship by providing credit to innovators across all sections of society.
In order to overcome traditional Indian stigma associated with failure of Startup enterprises in general and to encourage experimentation among Startup entrepreneurs through disruptive business models, credit guarantee comfort would help flow of Venture Debt from the formal Banking System.
Debt funding to Startups is also perceived as high risk area and to encourage Banks and other Lenders to provide Venture Debts to Startups, Credit guarantee mechanism through National Credit Guarantee Trust Company (NCGTC)/ SIDBI is being envisaged with a budgetary Corpus of INR 500 crore per year for the next four years.
9. Tax Exemption on Capital Gains
Objective is to promote investments into Startups by mobilizing the capital gains arising from sale of capital assets.
Government wants to promote investments into Startups by mobilizing the capital gains arising from sale of capital assets. With this objective, exemption shall be given to persons who have capital gains during the year, if they have invested such capital gains in the Fund of Funds recognized by the Government.
In addition, existing capital gain tax exemption for investment in newly formed manufacturing MSMEs by individuals shall be extended to all Startups. Currently, such an entity needs to purchase “new assets” with the capital gain received to avail such an exemption.
10. Tax Exemption to Startups for 3 years :-
Objective is to promote the growth of Startups and address working capital requirements
With a view to stimulate the development of Startups in India and provide them a competitive platform, it is imperative that the profits of Startup initiatives are exempted from income-tax for a period of 3 years. This fiscal exemption shall facilitate growth of business and meet the working capital requirements during the initial years of operations. The exemption shall be available subject to non-distribution of dividend by the Startup.
11. Tax Exemption on Investments above Fair Market Value :-
It is to encourage seed-capital investment in Startups.
Under The Income Tax Act, 1961, where a Startup (company) receives any consideration for issue of shares which exceeds the Fair Market Value (FMV) of such shares, such excess consideration is taxable in the hands of recipient as Income from Other Sources.
In the context of Startups, where the idea is at a conceptualization or development stage, it is often difficult to determine the FMV of such shares. In majority of the cases, FMV is also significantly lower than the value at which the capital investment is made. This results into the tax being levied under section 56(2) (viib).
Currently, investment by venture capital funds in Startups is exempted from operations of this provision. The same shall be extended to investment made by incubators in the Startups.
INDUSTRY-ACADEMIA PARTNERSHIP AND INCUBATION
12. Organizing Startup Fests for Showcasing Innovation and Providing a Collaboration Platform :-
Objective is to galvanize the Startup ecosystem and to provide national and international visibility to the Startup ecosystem in India.
To bolster the Startup ecosystem in India, the Government is proposing to introduce Startup fests at national and international stages. These fests would provide a platform to Startups in India to showcase their ideas and work with a larger audience comprising of potential investors, mentors and fellow Startups.
As part of “Make in India” initiative, Government proposes to:
- Hold one fest at the national level annually to enable all the stakeholders of Startup ecosystem to come together on one platform.
- Hold one fest at the international level annually in an international city known for its Startup ecosystem.
The fests shall have activities such as sessions to connect with investors, mentors, incubators and Startups, showcasing innovations, exhibitions and product launches, pitches by Startups, mentoring sessions, etc., announcements of rewards and recognitions, panels and conferences with industry leaders, etc.
13. Launch of Atal Innovation Mission (AIM) with Self-Employment and Talent Utilization (SETU) Program :-
Object to form such program is to serve as a platform for promotion of world-class Innovation Hubs, Grand Challenges, Startup businesses and other self-employment activities, particularly in technology driven areas.
The Atal Innovation Mission (AIM) shall have two core functions:
– Entrepreneurship promotion through Self-Employment and Talent Utilization (SETU), wherein innovators would be supported and mentored to become successful entrepreneurs
– Innovation promotion – to provide a platform where innovative ideas are generated
The main components proposed to be undertaken as part of the mission include:
- Establishment of sector specific Incubators including in PPP
- Establishment of 500 Tinkering Labs
- Pre-incubation training to potential entrepreneurs in various technology areas
- Strengthening of incubation facilities in existing incubators and mentoring of Startups
- Seed funding to potentially successful and high growth Startups innovation promotion.
14. Harnessing Private Sector Expertise for Incubator Setup :-
Objective is to ensure professional management of Government sponsored / funded incubators,
Government will create a policy and framework for setting-up of incubators across the country in
public private partnership.
Incubation facilities typically include physical infrastructure, provision of mentorship support, access to networks, access to market, etc.
To ensure professional management of Government sponsored / funded incubators, Government will create a policy and framework for setting-up of incubators across the country in public private partnership.
Government shall encourage setting up of;
- 35 new incubators in existing institutions. Funding support of 40% (subject to a maximum of INR 10 crore) shall be provided by Central Government for establishment of new incubators for which 40% funding by the respective State Government and 20% funding by the private sector has been committed. The incubator shall be managed and operated by the private sector.
- 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 private sector in existing institutions. The incubator shall be managed and operated by the private sector.
The funding for setting up of the incubators shall be provided by NITI Aayog as part of Atal Innovation Mission .Participating departments and agencies for setting up of new incubators shall be Department of Science and Technology, Department of Biotechnology, Department of Electronics and Information Technology, Ministry of Micro, Small and Medium Enterprises, Department of Higher Education, Department of Industrial Policy and Promotion and NITI Aayog.
15. Building Innovation Centers at National Institutes :-
Centers are created to propel successful innovation through augmentation of incubation and R&D efforts.
In order to augment the incubation and R&D efforts in the country, the Government will set up/ scale up 31 centers of innovation and entrepreneurship at national institutes, including:
- Setting-up 13 Startup centers: Annual funding support of INR 50 lakhs which shall be provided for three years for encouraging student driven Startups from the host institute.
- Setting-up/ Scaling-up 18 Technology Business Incubators (TBIs) at NITs/IITs/IIMs etc.
16. Setting up of 7 New Research Parks :-
To propel successful innovation through incubation and joint R&D efforts between academia and industry.
The Government shall set up 7 new Research Parks in institutes indicated below with an initial investment of INR 100 crore each. The Research Parks shall be modeled based on the Research Park setup at IIT Madras.
17. Promoting Startups in the Biotechnology Sector :-
Objective is to foster and facilitate bio-entrepreneurship.
In order to promote Startups in the sector, The Department of Biotechnology shall be implementing the following measures along with its Public Sector Undertaking Biotechnology Research Assistance Council (BIRAC):
Bio-incubators, Seed Fund and Equity Funding:
- 5 new Bio-clusters, 50 new Bio-Incubators, 150 technology transfer offices and 20 Bio-Connect offices will be set up in research institutes and universities across India.
- Biotech Equity Fund – BIRAC Ace Fund in partnership with National and Global Equity Funds (Bharat Fund, India Aspiration Fund amongst others) will provide financial assistance to young Biotech Startups.
Encouraging and leveraging global partnerships:
- Bengaluru-Boston Biotech Gateway to India has been formed. Through this initiative, a range of institutes in Boston (Harvard/ MIT) and Bengaluru will be able to connect to share ideas and mentor the entrepreneurs especially in the areas of Genomics, Computational Biology, Drug Discovery and new vaccines.
- Amplification of Bio-entrepreneurship through BIRAC Regional Entrepreneurship Centre (BREC). Department of Biotechnology shall set up 5 Regional centre or Mini-BIRACs in the next 5 years.
18. Launching of Innovation Focused Programs for Students :-
Objective is to foster a culture of innovation in the field of Science and Technology amongst students.
In order to promote research and innovation among young students, the Government shall implement the following measures:
• Innovation Core. Innovation Core program shall be initiated to target school kids with an outreach to 10 lakh innovations from 5 lakh schools. One lakh innovations would be targeted and the top 10,000 innovations would be provided prototyping support. Of these 10,000 innovations, the best 100 would be shortlisted and showcased at the Annual Festival of Innovations in the Rashtrapati Bhavan.
• NIDHI: A Grand Challenge program (“National Initiative for Developing and Harnessing Innovations) shall be instituted through Innovation and Entrepreneurship Development Centre (IEDCs) to support and award INR 10 lakhs to 20 student innovations from IEDCs.
• Uchhattar AvishkarYojana: A joint MHRD-DST scheme which has earmarked INR 250 crore per annum towards fostering “very high quality” research amongst IIT students. The funding towards this research will be 50% contribution from MHRD, 25% from DST and 25% from industry. This format has been devised to ensure that the research and funding gets utilized bearing in mind its relevance to the industry. Each project may amount to INR 5 crore only. This scheme will initially apply to IITs only.
19. Annual Incubator Grand Challenge :-
It is created to support creation of successful world class incubators in India.
The Government is proposing to make forward looking investments towards building world class incubators. In its first phase, the aim is to establish 10 such incubators. To enable this, GoI shall identify and select 10 incubators who have the potential to become world class. These incubators would be given INR 10 crore each as financial assistance which may be used for ramping up the quality of service offerings.
The incubators shall also become reference models for other incubators aspiring to offer best-in-class services. Video interviews of these incubators would be showcased on the Startup India portal. An “Incubator Grand Challenge” exercise shall be carried out for identification of these incubators.