STARTUP INDIA

Modi dazzles with promises, but is it enough to kickstart India’s startup engine?

Quartz india
Quartz india

Christmas came late for Indian startups. And when it did arrive today (Jan. 16), prime minister Narendra Modi played the perfect Santa.

For over a month, virtually every conversation in India’s fledgeling startup ecosystem has revolved around Modi’s “Startup India” event. Such was the anticipation that several entrepreneurs wanted to wait and hear Modi out before discussing future plans. The hope was that Modi’s announcements could be the game changer for young companies.

Today, when Modi entered the plenary hall at New Delhi’s Vigyan Bhavan, the 1,500-odd entrepreneurs and investors who had managed to get a pass for the much sought-after flagship event welcomed him with chants of “Modi Modi”.

At the end of Modi’s 45-minute speech, delivered with trademark showmanship, a standing ovation was in order.

The reason: He had granted some long-standing demands of Indian startups.

While there is a cheer among Indian startups, some stakeholders said they would like to wait for the fine print before they start a party.

“It is a great start and it is exciting to see that our government is looking to remove obstacles and facilitate startup ecosystem. But I am still looking for some clarifications,” Sujayath Ali, CEO and co-founder of fashion marketplace Voonik, told Quartz.

Some even believe that what Modi announced is too little. “There was a lot of noise around all the love for startups. But the policies he dished out are very minor. Most of the announcements are very small things that are made into big things,” Mahesh Murthy, co-founder of investment firm Seedfund, told Quartz.

Murthy, however, said, “this was better than zero.” And that seems to be the mood across most startup players.

While details of the “Startup India Action Plan” he announced today are not known, following are some of the highlights (there is no clarity though on when some of these will be implemented):

Tax exemptions

1. Income tax: Startups set up after April 1, 2016, exempted from income tax for three years. To this, Murthy of Seedfund had an observation to make:

Anurag Jain, co-founder of online auto portal Cardekho.com, said, “The exemption may not help much, as during the build-up phase, most startups either lose money or make very little profits.”

2. Capital gains tax: Exemption if capital gains are invested in government-recognised funds. Existing exemptions for newly formed SMEs (small and medium enterprises) to be extended to startups.

3. Tax exemption on investments above fair market value: Currently, venture capital funds investing in startups above fair market value (FMV) get an exemption. Now, investments made by incubators above FMV too shall be exempted.

Simplification of processes

1. Compliance regime based on self-certification: To reduce regulatory burden, startups will be allowed to certify compliance with labour and environment laws. In case of labour laws, there will be no inspections for three years. For environment laws, “white category” startups will be allowed self-certified compliance.

“No inspections for three years will to a great extent reduce regulatory burden related to the VAT (value-added tax) set-up in new states, warehouse procedures, new factory set-ups and other physical infrastructure related to startups,” Swati Gupta, CEO and founder of online industrial supplies store Industrybuying.com, said.

2. Startup in one day on a mobile app: From April 1, 2016, a mobile app and a web portal will serve as a platform for information exchange and interaction with the government and regulatory institutions. “This will ensure that companies/partnerships are registered in one day,” Modi said. “Startups will also be able to file for various clearances/applications/registrations through the mobile app and portal.”

Entrepreneurs, however, are not very convinced. “It’s very easy to say that you log into an app and register a company, but what is important to know is what details you need before you get to that point. There is no clarity right now on how this app will work, as the laws around setting up a company are still the same,” said Bipin Preet Singh, founder and CEO of mobile payments startup MobiKwik. “Would this be a single point of clearance, or will I still have to run around to file forms? The companies law has not changed, so I am not sure how a mobile app or website will help?”

3. Faster exits for startups: To make it easier for startups to exit, a provision to fast-track closure of businesses has been included in the Insolvency and Bankruptcy Bill 2015. Startups with simple debt structures may be wound up within 90 days of filing an application.

4. Relaxed norms for public procurement: To provide an equal platform to startups in public procurement, those into manufacturing will be exempted from the criteria of “prior experience/turnover” without any relaxation in quality standards or technical parameters.

5. Startup India hub: The government will set up a single point of contact for the entire ecosystem. “(The) Startup India hub will be a friend, mentor and guide for startups through their entire journey,” Modi said.

Patent reforms

1. Fast-track mechanism for patent application: “Patent applications of startups shall be fast-tracked in order to allow them to realise the value of their intellectual properties at the earliest,” Modi said.

2. Rebate on patent applications: Startups shall be provided an 80% rebate in filing patent vis-a-vis other companies, to enable them to cut costs initially.

While these reforms could help innovators file more patents, it will take more to make Indian patents more effective. “More needs to be done to make our patents well recognised internationally. A patent from the US or Singapore is recognised in other countries, but Indian patents aren’t,” Ravi Narayan, director at Microsoft Ventures India, told Quartz. “That needs to change so that Indian patents are understood better.”

Funding

1. Funding support through a fund of funds: The government will set up a fund with an initial corpus of Rs2,500 crore and, over four years, a total corpus of Rs10,000 crore, to support development and growth of innovation-driven enterprises. However, Murthy of Seedfund said, “The fund of funds was there even two years ago, but it disappeared. So this announcement is just recycled.”

2. Credit guarantee: A credit guarantee mechanism shall be rolled out through the National Credit Guarantee Trust Company or SIDBI, with an annual budgetary corpus of Rs500 crore for the next four years.

Incubation and training

1. A panel of facilitators for legal support: Facilitators shall provide assistance in filing and disposal of applications related to patents, trademarks and designs under the relevant Acts. “The government shall bear the entire fees of the facilitator for any number of patents, trademarks or designs that startups may file,” Modi said.

2. Atal Innovation Mission: The government will set up sector-specific incubators and 500 “tinkering labs” with 3D printers at universities. Pre-incubation training will be provided to potential entrepreneurs. It will also offer seed funding to high growth startups. A “grand innovation challenge” will be launched to find low-cost solutions to India’s “pressing and intractable problems,” Modi said.

“This initiative will help foster grass-root innovation, which will in-turn encourage more youngsters in entrepreneurship,” Shashank ND, founder and CEO of healthcare startup Practo, said.

3. New incubators: Funding support of 40%—up to Rs10 crore—shall be provided by the government to set up those new incubators that have received a commitment of funding of up to 40% from state governments and 20% from the private sector.

4. Research parks: The government shall set up seven new research parks—six at the IITs and one at IISc—with an initial investment of Rs100 crore each.

5. Innovation programme for students: An “innovation core programme” shall be initiated to target school kids with an outreach of one million innovators from over 500,000 schools. A grand challenge programme called the National Initiative for Developing and Harnessing Innovations will be launched to support students’ ideas, with an award of Rs10 crore to 20 student-innovators.

6. Incubator grand challenge: The government shall identify and select 10 incubators that have the potential to turn world class. These will be given Rs10 crore each as financial assistance, which may be used to ramp up the quality of service offerings.

Shelly Walia contributed to this piece.

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