In the inaugural session of the ‘Start-up India, Stand up India’ campaign, the Government unveiled a slew of incentives to encourage start-ups and catalyse entrepreneurship and innovation in the country. By bringing ‘start-ups’ into the lexicon of government policy-making, it has rightly recognised the potential of entrepreneurship in wealth creation and employment generation.
More than half of India’s population is under the age of 25. Boosting entrepreneurship will help India reap its demographic dividend.
As per the action plan for start-up enterprises in India, they will get following benefits:
- Tax benefits: A friendly tax regime is essential to spur investments. 1) Start-ups will be exempt from paying income tax on profits for three years. This would be beneficial for only those start-ups who manage to generate profits within first three years of its inception. 2) Investment in start-ups will also be exempt from capital gains tax. This has been a major demand of the investors. Long-term capital gains are taxed at 20 % in India. Currently, investments in start-ups are routed through Mauritius. Private equity and Venture Capital funds usually base themselves in Mauritius. This is because India has signed double taxation avoidance agreement (DTAA) with Mauritius and investments from the country are exempt from Capital Gains Tax in India. 3) Start-ups have also been given tax exemptions on investments made above the fair market value. Currently, equity capital raised by an unlisted firm in excess of fair market value is taxable. Now, start-ups will be exempt from this tax.
- Fund of funds: A fund of funds of start-ups have been established with a corpus of 10000 crore corpus for innovation-driven enterprises. This fund will not be invested directly in start-ups, but in venture capital funds registered with SEBI. This point in the action plan is contentious. Some analysts feel that the Government should not invest taxpayers money in risky enterprises given the fact that most start-ups fail and there is no dearth of funds for start-ups in India. While others have viewed it in a positive light, as it is essential to develop a domestic venture capital industry that is not dependent on foreign capital.
- Credit Guarantee Fund of Rs. 500 crores have been put in place. This has been done to grant easier access to credit to the budding entrepreneurs.
- Reduce regulatory burden: They will be able to self-certify their compliance with respect to 9 labour and environmental laws for 3 years without any inspection.
- Launch of an app and a portal: Faster approval will be given through an app built for this purpose. There will be a single Government portal for clearances, approvals and registration
- Faster and cheaper registration of patent: Registration of patents will be fast-tracked and 80 % rebate will be given on it.
- Relaxed norms for public procurement for start-ups: Start-ups will also be eligible to participate in Government 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).
- Start-up India hub: It will serve as a single point of contact for the entire start-up ecosystem. It will enable entrepreneurs to exchange knowledge and get access to funding
- Incubators: Adequate support and mentoring will be given to incubators.
- Setting up of research parks: 7 research parks will be set up in IITs etc where companies with research funds can set-up their base and leverage the expertise of the students.
- Faster exit: The Government is working towards a faster exit of start-ups if in case it fails. Ease of exit is as important as ease of entry to support entrepreneurship.
- Atal Innovation mission: The main objective of this mission is to provide support to innovators and also provide a platform where innovative ideas are generated.
To be eligible for the above benefits, the enterprise will have to get a certificate of its innovativeness from an inter-ministerial body which will be set up by the Government specifically for this purpose or an incubator set up by the Government or an incubator set up in a post-graduation institution recognised by the Government. It has been argued that the role of Government in the certification is not desirable.
To conclude, it will be some time before we come to know whether or not the Start-up India initiative is a game-changer. It will depend on how the action plan translates into policies.