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StartupIndiaActionPlan:agoodstart,butGovt.apathy,bigcorporatesahurdleBUSINESSTheHindu

TODAY'SPAPERBUSINESS

January25,2016

StartupIndiaActionPlan:agoodstart,butGovt.apathy,bigcorporatesa
hurdle

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StartupIndiaActionPlan:agoodstart,butGovt.apathy,bigcorporatesahurdleBUSINESSTheHindu

RajeevChandrasekhar
StartupsandentrepreneurshiparecriticaltoIndiaseffortstorestartprivateinvestmentintheeconomy
hemuchanticipated,andneeded,StartupIndiainitiativewaslaunchedlastweekendbyPrimeMinisterNarendraModiinamovetohelp
startupsandcatalyseentrepreneurship.StartupsandentrepreneurshiparecriticaltoIndiaseffortstorestartprivateinvestmentintothe
economy,inthefaceofriskaversion,stalledorslowinvestmentsfromcorporateIndia.
StartupsinIndiahavefacedtwosignificantobstacles.Oneisgovernmentapathy,corruptionandacomplexapprovalsprocess.Theotheris
thepowerofentrenchedcorporates,toopposeorkillstartupswhichchallengethem.SowhiletheActionPlanunveiledbyMr.Modiisa
catalyst,alsoneededarestructuralreformsthatpermitfreeandfaircompetitionandotherissuesthatdeterminetheviabilityandexistenceof
startups.Netneutrality,forinstance,isapolicyrequirementthatwilldeterminethefuturefortechstartups.
TheStartupIndiaActionPlanlistsoutacomprehensivesetofstructuralandregulatoryreformsinordertoachievethis.Incometax
exemption,easingcompliancethroughreductionofregulationsandhavingfixedqualificationsastowhatastartupis,wereexpectationsat
thetopoftheentrepreneurialbucketlist.
ButtheActionPlangoesfurther.Itgoeson,forinstance,toprovidean80percentwaiveronpatentfilingfeesbystartups,provideadvisory
servicesandcreateaRs.10,000crorefundoffundswhichistobemanagedbyprofessionalsdrawnfromtheprivatesector.Thesearejusta
fewofthesweetheartdealsforstartupentrepreneursundertheActionPlan.
Moneymatters
ButtheActionPlanalsoappearstohaveafewflawswhichneedtobeaddressed.Forinstance,itsetsupanInterMinisterialBoardledby
theDepartmentofIndustrialPolicyandPromotionwhichvalidatestheinnovativenatureofanenterprise,therebyqualifyingitasastartup
aninvolvementofgovernmentinthisecosystemthatishardlydesirable.Italsorequiresastartuptoobtainarecommendationfroman
incubatorinordertobeeligible.ThemostobviousandtangiblebenefitstostartupsundertheActionPlanarethetaxbreaksandfunding
support.TheActionPlanwaivesincometaxonprofitsforaperiodofthreeyearsandalsoexemptstaxesoncapitalgainswhichareinvestedin
thefundoffunds.
Thismovewillhelptoreducecashoutflowsandbringdownthecostofrunningastartup.Inconjunctionwiththewaiveroftheangel
investortaxundertheFinanceAct,2013,startupsnowcanhaveimprovedaccesstofundingopportunities.
PendingreformsliketheGSTregime,wouldalsomakeiteasierforsmallstartupstooperateacrossthecountry.
Rs.10,000crorefundoffunds
TheRs.10,000crorefundoffundsisasignificantfinancialcommitmentbytheGovernmentundertheActionPlan.Itissettostartwith
Rs.2,500croreinitiallywiththeamountsettorecurfor4years.
Thismegafundwillnotdirectlyinvestinstartupventures.Instead,itwilldosoviaSEBIregisteredventurefunds.Thisfundwillcontributea
maximumof50percentofthedaughterfundsize,providingasignificantboosttothecorpusofinvestmentsthatstartupshaveaccessto.It
isimportantthatthiscorpusisnotmanagedbyPoliticiansorbureaucrats,butsmart,savvyfundmanagerswhohaveatrackrecordon
investing.
Onthecostsavingside,an80percentrebateonpatentfilingcostsalongsideanexemptionfromhavingpriorexperiencetobeeligible
underthepublicprocurementprocessarestepstakentopromotetechbasedstartupsinparticular.
Whiletaxincentives,costsavingmeasuresandfundingsupportwillundoubtedlydriveupinvestmentintoinnovativestartupsitisessential
thatthegovernmentnotlosesightofnontechstartups.Itshouldmakespecialprovisionstoensurethatthissupportstructureextendstothe
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StartupIndiaActionPlan:agoodstart,butGovt.apathy,bigcorporatesahurdleBUSINESSTheHindu

agriculture,manufacturing,andhandicraftssectors.
Easeofdoingbusiness
PromotingstartupsbyimprovingeaseofdoingbusinessisclearlyattheforefrontoftheActionPlan.Asignificantbenefitastartupaccrues
underthispolicyisthewaiverfromlabourinspectionsfor3years.
Now,anyonewhohasrunabusinessandnavigatedthemazeofbureaucracyunderstandsthequagmirethatlabourlawscanbe,especiallyfor
astartup.Alongwiththeeaseinenvironmentalchecks,thesechangestolabourinspectionsareastepintherightdirectionparticularlyfor
thosestartupswhicharebasedinthemanufacturingsector.ButtheActionPlanexemptsstartsupfrominspectionunderafixednumberof
labourlawssixtobespecific.Thereareabout45lawsatthecentrallevelandaboutfourtimesthisnumberatthestatelevel.TheCentre
needstoworkwiththeStatestoensureasmoothrolloutofthebenefitsundertheActionPlanandavoiddiscordbetweenpoliciesatthetwo
levels.
StartupIndiaHub
TheActionPlanalsocreatesacentralisedsystemundertheStartupIndiaHubwhichassistsstartupsbyprovidingadvisoryserviceson
financing,businessstructuringandimprovingmanagementskills.Italsoprovidesforamobileappwhichallowsstartupstoselfcertify
themselvesandalsoactsasasinglepointofcontactbetweenentrepreneurs,regulatorsandthegovernment.Thisisapositivemovein
simplifyingtheregistrationprocess.
ThisisperhapsthemostpertinentquestionwhichhasbeenansweredbytheActionPlan.Inordertoobtainthewiderangingbenefitswhich
havebeendetailedinthe40pageActionPlan,itisessentialforanenterprisetoqualifyasastartup.Anuncontroversialrequirement,but
thedevilisinthedetails.
TheActionPlanrequiresanenterpriseorpartnershiptobeinnovativebydevelopingandcommercialisinganewproductorserviceastep
topromotetrulyinnovativeideas.ButitinstitutesaninterministerialbodyledbyDIPPtoexaminewhetheranenterpriseisinnovative.
Italsorequiresarecommendationfromanincubatorsetupbythegovernmentorbesupportedbyanincubatorinapostgraduate
institutionrecognisedbythegovernmentthisneedforvalidationandrecommendationgoesagainsttheverystepstheActionPlantakesto
reducegovernmentinvolvement.Thisadditionallayerofbureaucracycouldslowdownthestartingupprocessandneedstogo.
StartupIndiaisconsistentwiththePMscallforinnovationwhenhelaunchedDigitalIndia.TheStartupIndiaActionplanisagoodstartto
thisbutwillneedcontinuedsupportandevolutiontomakethisatrue,deeprevolutionfortheyouthofIndia.
TheauthorisaMemberofParliament&atechentrepreneur
rajeev.c@nic.in
TheActionPlan
requiresanenterpriseorpartnershiptobeinnovativebydevelopingandcommercialisinganewproductorservicea
steptopromotetrulyinnovativeideas.
Themostobviousandtangiblebenefitstostartupsundertheplanaretaxbreaksandfundingsupport

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