Friday, January 22, 2016

What is a startup?
  • A startup is an entity, private, partnership or limited liability partnership (LLP) firm that is headquartered in India, which was opened less than five years ago and have an annual turnover less than Rs25 crore. 
  • To be eligible for considering as startup, the entity should not be formed by splitting up or reconstruction and its turnover should not have crossed Rs25 crore during its existence. 

What are the advantages?  
  • Under the Scheme, no inspection would be carried out on start-ups for three years regarding labour laws. 
  • In addition, environment law compliance is required only post-self certification.

Are there financial benefits?
  • In patent costs, the startups can claim an 80% rebate. 
  • That means, if a startup applies for a patent, the government will fund the defence of the patent, and give rebate of 80% in the fees. 
  • The government will also pay fees of the facilitator for helping the startup obtain the patent. 
  • Faster patent registration and protection for Intellectual Property Rights (IPRs) is provided under the Scheme.  
  • Patent filing procedures to be simplified. Significant reduction in fees for filing Patents.

What are the advantages for startups regarding registration?
  • The government is launching a mobile app on 1 April 2016 and a portal that will allow companies to register in a day. 
  • In addition, there would be a single point of contact for Start-up India hub. 
  • In addition, there will be single window clearance for clearances, approvals, and registrations.

What is the government’s role in boosting start ups?

The Ministry of Human Resource Development (HRD) and the Department of Science and Technology have agreed to partner in an initiative to set up over 75 startup support hubs in the

1.   National Institutes of Technology (NITs)
2.   Indian Institutes of Information Technology (IIITs)
3.   Indian Institutes of Science Education and Research (IISERs) 
4.   National Institutes of Pharmaceutical Education and Research (NIPERs)

What are the special benefits for startups in public procurement?

Startups in the manufacturing sector are exempted from the criteria of prior ‘experience/ turnover’ without any relaxation in quality standards or technical parameters in public procurement (by government).

How much funding is available for this scheme?
  • Rs10,000-crore fund for new enterprises, equal opportunity in government procurement, a Rs500-crore credit guarantee scheme and easier exit norms. 
  • Japanese Softbank, which had already invested $2 billion in Indian startups, has pledged total investments of $10 billion. 
What are benefits under the provision on Income Tax?
  • Under the Scheme, Income Tax exemption is available for first three years. 
  • However, the startup will be eligible for tax benefits only after obtaining certificate from the Inter-Ministerial Board, setup for this purpose.

Is there any exemption in capital gains tax?
  • Yes. If the money is invested in fund of funds recognised by the government, the investor can claim capital gains tax exemptions. 
  • In addition, existing capital gain tax exemption for investment in newly formed MSMEs by individuals shall be extended to all startups.

What is a accelerator and incubator ?
  • Accelerators accelerate the speed of your business. In most cases an existing business or an idea. The programs are short and intense. They help you hone your idea and build it out. 
  • Whereas incubators incubate your early pre-product idea, help you make a prototype, and further make a product out of it. The engagement is longer than an accelerator. 
Startup India Action Plan aims to set up 35 new incubators based on the PPP model. 

Analysis !! As UPSC guys we need to know both the positive as well as negative side of the story !!

First, lets see the POSITIVE ASPECTS !

  • The thinking that has gone into the action plan is impressive. The plan attempts to address exactly the right set of issues. Lots of successful Indian companies have been relocating to Singapore in the past few years because of the difficulty of doing business at home. If Startup India’s execution matches the vision, it will reverse this trend and be a huge catalyst for our entrepreneurial ecosystem.

  • Startup India is not novel in the global context. In fact, contrary to what many commentators feel, India is not competing with Silicon Valley in terms of innovation and global investor attention. Catching up with Silicon Valley is a distant goal. At best, India is playing catch up with other international startup ecosystems. The impressive Startup Chile, which provides equity-free investments to startups and visas to foreign entrepreneurs, attracts entrepreneurs from around the world. Startup Brasil is another similar programme. South Korea’s initiatives in the form of startup funds, visa programmes, tax incentives, broadband infrastructure, and government-sponsored incubators are simply unparalleled. Israel too has had similar programmes for several decades now. All of these countries are vying for the attention of global investors. India does too. And Startup India can finally make India truly competitive in the global tech and innovation scene.

Where does INDIA's COMPARATIVE ADVANTAGE lies as far as STARTUP INDIA is concerned ?

  • First off all, the domestic market is huge, and we will have another wave of tech-enabled services companies emerge to cater to domestic demand. 
  • Second, we have a young labour force with lots of engineers. This will help feed into Software-as-a-Service (SaaS) companies that will leverage local talent to service global tech markets. A number of other sectors that don’t usually get the attention of VCs – such as manufacturing and agriculture – are also set to get a wave of support.

Now lets talk NEGATIVE !!!

·      “Eventual freedom from State will be true evolution for startup” was made at Vigyan Bhavan by none other than Mr. Arun Jaietly, the Finance Minister of India. The statement, later endorsed by Prime Minister Modi.........Startups as defined by an inter-ministerial group, approval from a government approved incubator, tax exemptions, State-sponsored Fund of funds – all these measures will not reduce but increase interaction and intervention by State multi-fold, and will create multiple layers of fault-lines and defeat the very purpose of startup policy as well as act against the vision of the scheme.

·      While tax exemptions and sops are welcome, they will not help startups in short-term/long-term as startups/funds are looking for a stable legal environment, clarity in tax laws and minimal interaction with government in the initial formative years. Unfortunately, things are totally reverse at present moment and nothing has been done to address these issues.

·      Startups / investors are loaded with paper work at every step and every paper work results in extra costs as well as breeding of corruptions. One such example is “valuation certificate” which is required by the startup to establish fair value of startups at the time of raising capital. After every transaction by an investor, valuation certificate from an accountant is needed and tax is levied on deemed income if there is gap between accounting firm valuation and investors. This rule creates huge issues in creating ESOPs / investments / Call / put options, etc.

·   Self-certification of compliance, via the mobile app, with nine Labour and three Environment laws is a welcome move with a three-year moratorium on labour inspection. But why not include simple self-certification compliance for all other laws too, eg secretarial and governance matters? And why not for say, five years? Especially, when the definition of a startup talks of an entity that is less than five years old?

·      Since April 2015, central and state governments and PSUs have to mandatorily procure 20 per cent from micro, small and medium enterprises (MSMEs). This has been extended now to include startups. But only startups in the manufacturing sector are eligible! Why not all startups?

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