Start-up Ecosystem In India

What is Start up India programme and its mandates? Let’s cover the parts in brief.

Start-up Ecosystem In India

Risks involved in Indian tech unicorns gaining at China’s expense

Note4Students

From UPSC perspective, the following things are important :

Prelims level : UPI

Mains level : Paper 3- Bubble in tech start-ups

Context

Investment firms with a reputation for tracking and hunting unicorns — startups with billion-dollar-plus valuations are shifting their attention to India from China. While this cannot be good for China, the question remains over whether or not it is good for India either.

China’s crackdown on tech industry

  • Beijing has decided to crack down on the tech industry, wiping out $1.5 trillion in market value.
  •  The crackdown began with the abrupt suspension of the much-anticipated initial public offering (IPO) of Ant Group last November.
  •  China’s regulators stopped the ride-hailing company, Didi Chuxing, from accepting new users, as soon as it went public on the New York Stock Exchange.
  • There have been sweeping industry-wide changes, from anti-monopoly legislation to new rules governing data collection and use.
  • All of this has investors spooked.

How India can benefit from China’s crackdown on the tech industry?

  • Due to China’s crackdown, for the first time since 2013, the value of venture deals in India surpassed that of China.
  • Converging factors in India: If this keeps up, India will experience a veritable blessing of unicorns, thanks not only to the fact that the money fleeing China needs refuge, but to many converging forces within India itself.
  • India is the world’s second largest digital market.
  • The use of the United Payment Interface has made digital payments easier in a society that was — and still is — so tied to cash.
  • The pandemic lockdowns have driven an unusually large proportion of that digital population to spend an unusually large amount of time and spend money online.
  • This means that in a very short time, the need to serve this digital population has exploded.
  • The Chinese crackdown could not have come at a more opportune time.
  • Many startups are in a hurry to capitalise on the boom with many investors looking to capitalise them.

Concern: the risk of tech-bubble

  • When investors rush in to seek refuge because they are fleeing risk elsewhere, even if the refuge looks promising, they can contribute to a self-reinforcing cycle that ends up destroying the refuge.
  • Eager to get a piece of the action, each investor may over-value a company, far exceeding what is justifiable based on market fundamentals.
  • The stampede builds and soon you have the makings of a tech bubble.

Way forward for investors

  • Instead of reflexively chasing the next shiny startup in India, investors ought to ask a few questions.
  • Do the startups and the markets they serve have the capacity to scale up and do they justify sticking with them for a long period?
  • Has the Indian initial public offerings market really proven itself?
  • Are there enough large corporations that might buy these startups?
  • Can the under-investment in essentials, such as education, health and job market readiness, clog the talent pipeline?
  • Can the Indian government be trusted not to borrow a page from the government it would like to emulate — the Chinese state — and attempt a crackdown of its own?

Consider the question “Indian tech start-ups are dealing with the gush of capital owing to the convergence of certain factors. Examine these factors and also the concerns with such influx of capital.”

Conclusion

India desperately needs patient capital, skilled talent and appropriate technology to solve the country’s numerous fundamental problems laid bare by the pandemic. The last thing India can afford is a bubble that bursts and for all three to take flight and seek refuge in yet another country because no one wants to pick up the pieces of a popped bubble.

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Back2Basics: IPO

  • An initial public offering (IPO) refers to the process of offering shares of a private corporation to the public in a new stock issuance.
  • An IPO allows a company to raise capital from public investors.
  • The transition from a private to a public company can be an important time for private investors to fully realize gains from their investment as it typically includes a share premium for current private investors.
  • Meanwhile, it also allows public investors to participate in the offering.

Start-up Ecosystem In India

Startup ecosystem can help India become powerhouse of global economy

Note4Students

From UPSC perspective, the following things are important :

Prelims level : Unicorn club

Mains level : Paper 3- How startup ecosystem can help transform India

Context

With 62 per cent of the population in the working-age group and 54 per cent below the age of 25, we have the advantage of leveraging the skill and ability of our youth to drive the nation forward through productive output and innovation.

Significance of startup ecosystem in the country

  • In 2021 alone, Indian startups have so far raised upward of $20 billion in funding.
  • Today, India is home to more than 40,000 startups and is building a robust tech and internet infrastructure.
  • The last decade-and-a-half has witnessed a significant change in the landscape — from the founding of new startups, to global investor interest, to the advances made in infrastructure and policies.
  • Global investors too are realising the potential upside in India’s huge, under-penetrated market as the country steadily makes a place for itself as a leading R&D hub for many Silicon Valley companies.
  • Amid the Covid-19 pandemic, Indian startups have rapidly innovated to provide indigenous, tech-enabled solutions to combat challenges from testing kits and ventilators to remote monitoring, and preventive technologies, as well as innovations in supply chain management, logistics, and education.

Factors driving startup economy in India

  • The steady rise of Indian IT companies in the 2000s, a large talent pool of a skilled workforce, increased expendable income, and rising capital inflows have collectively contributed in large part.
  • Young generation: Moreover, the ability of the young generation to take risks, move fast, and disrupt things without fear, has become our biggest asset today.
  • Increasing internet use: In the next five years and likely to have an estimated 850 million internet users by 2030, the country stands at the cusp of unprecedented economic growth.

How it helps economy

  • The proliferation of this startup economy has brought with it new business opportunities, innovation, tech-centric approaches and job creation across sectors.
  • A mature startup ecosystem, with seasoned entrepreneurs and technology-led solutions, paves the way for innovation and expanding its global footprint.
  • While value creation lies at the centre of entrepreneurship, Indian startups are also taking big strides in building synergies and partnerships with global entities, further demonstrating the evolution of the startup ecosystem and its appetite for innovation, collaboration and disruption.
  •  In fact, one of the paradigm shifts brought about through technology during the pandemic has been systemic shift to online education and remote learning at scale.
  • Solutions built by Indian startups saw widespread adoption not just domestically but also on a global scale, firmly establishing the country as a cornerstone of tech and innovation in the world.

Suggestions

  • Educations and reskilling: In order to transition beyond the current capabilities and achieve the demographic dividend, education, and reskilling, and upskilling of our workforce is crucial.
  • Policy environment: Apart from the domestic policy environment, the global environment and technological advances are also changing, and it is imperative that India is prepared for this revolution.
  • Foster entrepreneurship: Apart from policy-level decisions that promote entrepreneurship, the onus is also on India’s corporate sector to foster entrepreneurialism, and create synergies to build impactful technology solutions, sustainable and resource-efficient growth.
  • Inclusion and sustainability: As country stands at the cusp of unprecedented economic growth, speed, inclusion, and sustainability are key elements in this mission.
  • Tap the potential of rural and semi-urban India: The collective future efforts of the public and private sectors to improve physical and digital connectivity will also help unlock the untapped potential of rural and semi-urban India to truly lead Industry 4.0 and beyond.
  • Focus on goals of national importance: In view of achieving this transformation at scale, the Indian startup ecosystem must focus on developing solutions that allow businesses in key sectors to meet goals of national importance.

Conclusion

Coupled with the nation’s focus on strengthening digital infrastructure in healthcare and education, and boosting employment in manufacturing, there is little doubt that India@100 will be a powerhouse of the global economy.

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Start-up Ecosystem In India

India’s FAANG moment has arrived

Note4Students

From UPSC perspective, the following things are important :

Prelims level : FAANG

Mains level : Paper 3- Importance of tech start-ups.

Context

In the US, the Big Tech FAANG five are Facebook, Apple, Amazon, Netflix and Google (now Alphabet).  Today, in India, Zomato’s stock market debut is a big occasion for India that could pave the path for other online successes.

Significance for economy

  • It is the first among a host of domestic unicorns to have taken the IPO road, heralding a watershed moment.
  • Boost for startups: It is also also a big leap for our country as a whole, which today boasts of the third largest start-up ecosystem in the world.
  • Creation of online ecosystem: The response to Zomato’s initial public offer (IPO) gave us interesting insights into the robustness of the online economy in a pandemic-stricken world.
  • Help creation of tech-giants: It could alter the composition as well as perception of markets, giving Indian investors a feel of new-generation, tech-heavy, assets-light and agile entrepreneurial growth stories, woven around the consumer internet ecosystem in India.
  • Attracting FDI: With global liquidity at unprecedented levels and tech being the toast of the season, we could be looking at FDI inflows in unforeseen proportion in days to come.
  • The ascent of new-age enterprises like Zomato and Paytm on the Stock Market, followed by likes of Oyo, Ola, Swiggy, Byju’s and even Flipkart could signal the emergence of India’s own FAANG family.

What sets the tech startups apart?

  • Their reliance on big data and leveraging of ever-evolving technology, while sustaining a two-way connection with clients set them apart.
  • The ‘stickiness’ and the ‘connect’ built over the years through carefully fabricated social layers puts them in the league of giant social media influencers.
  • During the last few decades, two distinctive traits that have the potential to push the boundaries of limitations are the creation of a large talent pool and India’s prowess in software and data (including AI/ML) technology, both on a global scale.

Conclusion

As we celebrate 30 years of economic reforms, today’s debut, at least for the markets and the economy, may well be called India’s re-tryst with destiny.

Start-up Ecosystem In India

[pib] SAGE (Senior-care Ageing Growth Engine) Initiative

Note4Students

From UPSC perspective, the following things are important :

Prelims level : SAGE Initiative

Mains level : Old age security

The Ministry of Social Justice and Empowerment has launched the SAGE (Seniorcare Aging Growth Engine) initiative and SAGE portal for elderly persons.

SAGE Initiative

  • The SAGE will be a “one-stop access” of elderly care products and services by credible start-ups.
  • The start-ups will be selected on the basis of innovative products and services.
  • Their products should be able to provide across sectors such as health, housing, care centers, apart from technological access linked to finances, food and wealth management, and legal guidance.
  • The start-ups who have applied will be selected by an independent screening committee of experts.
  • A fund of upto Rs.1 crore as one-time equity will be granted to each selected start-up.

Why need such initiative?

  • India’s elderly population is on the rise as per surveys.
  • The share of elders, as a percentage of the total population in the country, is expected to increase from around 7.5% in 2001 to almost 12.5% by 2026, and surpass 19.5% by 2050.
  • There is an urgent need to create a more robust eldercare ecosystem in India, especially in the post-COVID phase.

Start-up Ecosystem In India

[pib] Stand Up India Scheme

Note4Students

From UPSC perspective, the following things are important :

Prelims level : Stand-Up India Scheme

Mains level : Not Much

The Ministry of Finance has informed that more than 81% of account holders are Women under Stand Up India Scheme.

Try this PYQ from CSP 2016:

Q.With reference to ‘stand up India scheme’, which of the following statement is/are correct?

  1. Its purpose is to promote entrepreneurship among SC/ST and women entrepreneurs.
  2. It provides for refinance through SIDBI.

Select the correct answer using the code given below.

(a) 1 only

(b) 2 only

(c) Both 1 and 2

(d) Neither 1 nor 2

Stand-Up India Scheme

  • Stand Up India Scheme was launched on 5 April 2016 to promote entrepreneurship at the grass-root level of economic empowerment and job creation.
  • This scheme seeks to leverage the institutional credit structure to reach out to the underserved sector of people such as SCs, STs and Women Entrepreneurs.
  • The objective of this scheme is to facilitate bank loans between Rs.10 lakh and Rs.1 crore to at least one SC or ST borrower and at least one woman borrower per bank branch for setting up a Greenfield enterprise.
  • The offices of SIDBI and NABARD shall be designated Stand-Up Connect Centres (SUCC)
  • It is similar to but distinct from Startup India.

Back2Basics: Start-Up India Scheme

  • Startup India Scheme is an initiative of the Indian government, the primary objective of which is the promotion of startups, generation of employment, and wealth creation.
  • It was launched on the 16th of January, 2016.
  • A startup defined as an entity that is headquartered in India, which was opened less than 10 years ago and has an annual turnover of fewer than ₹100 crores (US$14 million).
  • The action plan for this initiative is based on the following three pillars:
  1. Simplification and Handholding
  2. Funding Support and Incentives
  3. Industry-Academia Partnership and Incubation
  • An additional area of focus is to discard restrictive States Government policies within this domain, such as License Raj, Land Permissions, Foreign Investment Proposals, and Environmental Clearances.
  • It was organized by The Department for promotion of industry and internal trade (DPI&IT).

Start-up Ecosystem In India

What are the One-Person Companies (OPCs)?

Note4Students

From UPSC perspective, the following things are important :

Prelims level : OPCs

Mains level : Entreneurship promotion

In her Budget speech, the Union Finance Minister had announced measures to ease norms on setting up one-person companies (OPCs).

Q.What are One-Person Companies (OPCs)?  Discuss how they will help startups and non-resident Indians?

What is an OPC?

  • As the name suggests, a one-person company is a company that can be formed by just one person as a shareholder.
  • These companies can be contrasted with private companies, which require a minimum of two members to get going.
  • However, for all practical purposes, these are like private companies.
  • It is not as if there was no scope for an individual with aspirations in business prior to the introduction of OPC as a concept.
  • As an individual, a person could get into the business through a sole proprietorship mode, and this is a path that is still available.

Why do we need such companies?

  • A single-person company and sole proprietorship differ significantly in how they are perceived in the eyes of law.
  • For the former, the person and the company are considered separate legal entities. In a sole proprietorship, the owner and the business are considered the same.
  • This has an important implication when it comes to the liability of the individual member or owner. In a one-person company, the sole owner’s liability is limited to that person’s investment.
  • In a sole proprietorship set-up, however, the owner has unlimited liability as they are not considered different legal entities.
  • Some see the proposal as a move to encourage corporatization of small businesses. It is useful for entrepreneurs to have this option while deciding to start a business.

Is this a new idea?

  • Such a concept already exists in many countries. In India, the concept was introduced in the Companies Act of 2013.
  • Its introduction was based on the suggestions of the J. Irani Committee Report on Company Law, which submitted its recommendations in 2005.
  • Pointing out that there was a need for a framework for small enterprises, it said small companies would contribute significantly to the Indian economy.
  • But because of their size, they could not be burdened with the same level of compliance requirements as large public-listed companies.

Features of OPCs

  • The law on one-person companies that took shape, as a result, exempted such companies from many procedural requirements, and, in some cases, provided relaxations.
  • For instance, such a company does not need to conduct an annual general meeting, which is a requirement for other companies.
  • A one-person company also does not require signatures of both its company secretary and director on its annual returns. One is enough.
  • There was, however, criticism that some rules governing a one-person company were restrictive in nature. This year’s Budget has dealt with some of these concerns.

How many OPCs does India have?

  • According to data compiled by the Monthly Information Bulletin on Corporate Sector, there were 34,235 OPCs out of a total number of about 1.3 million active companies in India (Dec 2020).
  • Data also show that more than half of the OPCs are in business services.

Start-up Ecosystem In India

[pib] Startup India Seed Fund Scheme

Note4Students

From UPSC perspective, the following things are important :

Prelims level : Seed Funding

Mains level : Startup promotions in India

Startup India Seed Fund Scheme (SISFS) has been approved for the period of next four years starting from 2021-22.

Seed Fund Scheme

  • The scheme aims to provide financial assistance to startups for proof of concept, prototype development, product trials, market entry and commercialization.
  • 945 Crore corpus will be divided over the next 4 years for providing seed funding to eligible startups through eligible incubators across India.
  • The scheme is expected to support about 3600 startups.

Q.Discuss various inherent non-policy challenges to Start-ups in India.(150W)

What is Seed Funding?

  • Seed funding or seed-stage funding is a very early investment which aims at helping a business grow and generating its own capital.
  • Also referred to as seed money or seed capital, investors often get an equity stake in exchange for the capital invested.
  • The investors can themselves be the founders and use their savings as seed money for their new company — also known as bootstrapping.

Why Seed Funding matters?

  • It is a fact that starting a new business and lifting it up off the ground is a huge ask for most entrepreneurs and it only gets tougher with capital constraints.
  • Seed funding helps get things started before the business earns any revenue.
  • It is an effective solution for startups and growing businesses as it provides the much-needed early monetary support.
  • It can cover everything from infrastructure costs, marketing and development costs as well as the cost of initial hiring. Investment is the fuel of any business and seed funding is the first drop of this fuel.
  • As seed money becomes much-needed cash reserve or working capital, not having it is one of the main reasons for failure.

Various options for Seed Funding

  • Crowdfunding
  • Corporate seed funds
  • Incubators Accelerators
  • Angel investors
  • Personal Savings
  • VC Funding
  • Angel Funds or Angel Networks

Start-up Ecosystem In India

[pib] Ranking of States on Support to Startup Ecosystems, 2019

Note4Students

From UPSC perspective, the following things are important :

Prelims level : Ranking of States on Support to Startup Ecosystems

Mains level : Not Much

The Results of the second edition of Ranking of States on Support to Startup Ecosystems were recently released by Minister of Commerce & Industry.

About the Ranking

  • The Department for Promotion of Industry and Internal Trade (DPIIT) has conducted the second edition of the States Startup Ranking Exercise.
  • The key objective is to foster competitiveness and propel States and Union Territories to work proactively towards uplifting the startup ecosystem.
  • It has been implemented as a capacity development exercise to encourage mutual learning among all states and to provide support in policy formulation and implementation.

7 focus areas

  1. Institutional Leaders
  2. Regulatory Change Champions
  3. Procurement Leaders
  4. Incubation Hubs
  5. Seeding Innovation Leaders
  6. Scaling Innovations Leaders
  7. Awareness and Outreach Champions

Start-up Ecosystem In India

[pib] Start-Up Village Entrepreneurship Programme (SVEP)

Note4Students

From UPSC perspective, the following things are important :

Prelims level : Start-Up Village Entrepreneurship Programme (SVEP)

Mains level : Not Much

The SVEP is propelling enterprises in rural areas and building rural entrepreneurs during this pandemic.

Try this PYQ 2015:

How does the National Rural Livelihood Mission seek to improve livelihood options of rural poor?

  1. By setting up a large number of new manufacturing industries and agribusiness centres in rural areas.
  2. By strengthening ‘self-help groups’ and providing skills development
  3. By supplying seeds, fertilizers, diesel pump-set sand micro-irrigation equipment free of cost of farmers.

Select the correct answer using the codes given below:

(a) 1 and 2 only

(b) 2 only

(c) 1 and 3 only

(d) 1, 2 and 3

About SVEP

  • The SVEP is implemented by Deendayal Antyodaya Yojana –National Rural Livelihoods Mission (DAY-NRLM), Ministry of Rural Development, as a sub-scheme since 2016.
  • Its aims are to support the rural poor come out of poverty, supporting them set up enterprises and provide support till the enterprises stabilize.
  • SVEP focuses on providing self-employment opportunities with financial assistance and training in business management and soft skills while creating local community cadres for promotion of enterprises.
  • It addresses three major pillars of rural start-ups namely – finances, incubation and skill ecosystems.

Key elements of SVEP

  • Create a Block Resource Centre – Enterprise Promotion (BRC-EP); The BRC should act as a nodal centre to implement SVEP. Block Level Federation (BLF) to come up under NRLM could be one of the institutional platforms for BRC.
  • Cluster Level Federation (CLF) /VOs shall hold the entity till BLF comes into existence. BRC should follow a self-sustaining revenue model.
  • BRC to be assisted by CRP-EP and the Bank Coordination System (Bank Mitra). BRC to provide resource and reference material including videos, manuals etc.
  • Help enterprises get bank finance using tablet-based software for making the business feasibility plan, doing credit appraisal and tracking business performance.
  • Use the Community Investment Fund (CIF) to provide seed capital for starting the business until it reaches a size where bank finance is needed.

Start-up Ecosystem In India

[pib] NIDHI-EIR Programme

Note4Students

From UPSC perspective, the following things are important :

Prelims level : NIDHI EIR

Mains level : Not Much

A brochure featuring Entrepreneurs in Residence (EIR) under the National Initiative for Developing and Harnessing Innovations (NIDHI) programme was launched by Dept. of Science and Technology (DST).

Try this MCQ:

Q.The NIDHI-EIR Programme sometimes seen in news functions under the:

a)Ministry of Science & Technology

b)Ministry of Commerce and Industry

c)Ministry of Finance

d)Ministry of Micro, Small and Medium Enterprises

About NIDHI-EIR

  • DST has announced a National Initiative for Developing and Harnessing Innovations (NIDHI) is an umbrella programme for nurturing ideas and innovations into successful startups.
  • EIR programme is one of the programs introduced under NIDHI to inspire the best talents to be entrepreneurs, to minimise the risk involved in pursuing start-ups, and to partially set off their opportunity costs of high paying jobs.
  • It provides tremendous opportunities for innovative entrepreneurs to expand their networks and get critical feedback on their ventures in order to promote their entrepreneurial career goals and aspirations.

The opportunities under NIDHI-EIR program include:

  • Guidance from experienced, innovative and highly successful entrepreneurs on the business concept, strategy or venture and insight into specific industries or markets.
  • Best practices for starting a business and broaden the professional network.
  • Co-working spaces for developing the idea into a marketable product.

Start-up Ecosystem In India

[pib] National Startup Advisory Council

Note4Students

From UPSC perspective, the following things are important :

Prelims level : National Startup Advisory Council

Mains level : Mechanisms to promote startup in India

The Union Government has notified the structure of the National Startup Advisory Council to advice on measures needed to build a strong ecosystem for nurturing innovation and startups in the country.

National Startup Advisory Council

  • The Council will be chaired by Minster for Commerce & Industry.
  • It will consist of the non-official members, to be nominated by Central Government, from various categories like founders of successful startups, veterans and persons capable of representing interests of incubators and accelerators etc.
  • The term of the non-official members of the Startup Advisory Council will be for a period of two years.
  • The nominees of the concerned Ministries/Departments/Organisations, not below the rank of Joint Secretary to the Government of India, will be ex-officio members of the Council.
  • Joint Secretary, Department for Promotion of Industry and Internal Trade will be the Convener of the Council.

Various functions

  • The Council will suggest measures to foster a culture of innovation amongst citizens and students in particular, promote innovation in all sectors of economy across the country
  • It will also suggest measures to facilitate public organizations to assimilate innovation with a view to improving public service delivery, promote creation, protection and commercialization of intellectual property rights.
  • It would suggest making it easier to start, operate, grow and exit businesses by reducing regulatory compliances and costs, promote ease of access to capital for startups, and incentivize domestic capital for investments into startups.
  • It would also mobilize global capital for investments in Indian startups, keep control of startups with original promoters and provide access to global markets for Indian startups.

Start-up Ecosystem In India

Start-Up India Scheme

Note4Students

From UPSC perspective, the following things are important :

Prelims level : Start-up India scheme

Mains level : Startup ecosystem in India


  • Maharashtra, Karnataka, and Delhi have seen the highest number of start-ups recognised under the government’s flagship Start-Up India Scheme in the period from 2016 to 2019.
  • These three states also attracted the highest investments from Alternative Investment Funds (AIFs) in start-ups.

About Start-Up India Scheme

  • Startup India Scheme is an initiative of the Indian government, the primary objective of which is the promotion of startups, generation of employment, and wealth creation.
  • It was launched on the 16th of January, 2016.
  • A startup defined as an entity that is headquartered in India, which was opened less than 10 years ago, and has an annual turnover less than ₹100 crore (US$14 million).
  • The action plan of this initiative is based on the following three pillars:
  1. Simplification and Handholding
  2. Funding Support and Incentives
  3. Industry-Academia Partnership and Incubation
  • An additional area of focus is to discard restrictive States Government policies within this domain, such as License Raj, Land Permissions, Foreign Investment Proposals, and Environmental Clearances.
  • It was organized by The Department for promotion of industry and internal trade (DPI&IT).

Back2Basics

Alternative Investment Funds (AIFs)

  • An alternative investment is a financial asset that does not fall into one of the conventional investment categories. Conventional categories include stocks, bonds, and cash.
  • Most alternative investment assets are held by institutional investors or accredited, high-net-worth individuals because of their complex nature, lack of regulation, and degree of risk.
  • Alternative investments include private equity or venture capital, hedge funds, managed futures, art and antiques, commodities, and derivatives contracts.
  • Real estate is also often classified as an alternative investment.

Start-up Ecosystem In India

[op-ed snap] Half-measures: new angel tax rules for start-ups

Note4students

Mains Paper 3: Economy | Mobilization of resources

From the UPSC perspective, the following things are important:

Prelims level: Angel Tax

Mains level:  Change in Angel Tax rules on startup and it’s effects


NEWS

CONTEXT

After the uproar among start-up investors in the last few weeks, the Centre  decided to ease the conditions under which investments in start-ups will be taxed by the government.

New Rules

  • Investments up to ₹25 crore in companies that are less than 10 years old and with a total turnover of less than ₹100 crore will be exempted from the new angel tax.
  • Investments made by listed companies with a net worth of at least ₹100 crore or a total turnover of at least ₹250 crore will be fully exempt from the tax; so will investments made by non-resident Indians.

Problems with old rules

  • In 2012, the angel tax was justified as an emergency measure to prevent the laundering of illegal wealth by means of investments in the shares of unlisted private companies at extraordinary valuations.
  • But the adverse effect that it has had on investor confidence has forced the government to ease the stringent rules.

Positive effects of New Rules

  • The easing of the outdated angel tax rules will definitely make life easier for start-ups, which are in desperate need for capital to fund their growth and other business requirements. 
  • Further, since the new rules are set to be applied retrospectively, many young companies that have received notices from the Income Tax Department in the last few years will be relieved by the latest tweak in the rules.

Negative Effects

  • Companies wishing to make use of the latest exemption, for instance, will first need to be registered with the government as start-ups.
  • To be classified as one, a company needs to attest to conditions such as that it has not invested in any land unrelated to the business, vehicles worth over ₹10 lakh, or jewellery.
  • These requirements, while probably aimed to prevent money- laundering, can lead to considerable bureaucratic delays and rent-seeking.
  • . Also, the new rules for the angel tax can cause the same old problem of arbitrary tax demands for companies that do not fall under the defined category of start-ups.
  • The taxes to be paid are still supposed to be calculated by the authorities based on how much the sale price of a company’s unlisted share exceeds its fair market value.
  • It is impossible to know the market value, let alone the fair market value, of shares that are not openly traded in the marketplace.
  • So tax authorities with ulterior motives will still possess enough leeway to harass start-ups with unreasonable tax demands.

Way Forward

The government should address the arbitrary nature of the angel tax, Otherwise, the damage to investor confidence may remain.

Start-up Ecosystem In India

[pib] Second edition of States’ Ranking on Startup Initiatives

Note4students

Mains Paper 3: Economy | Development and Employment

From UPSC perspective, the following things are important:

Prelims level: States’ Start-up Ranking 2019

Mains level: Boosting the startup ecosystem in India


News

  • The Department for Promotion of Industry and Internal Trade (DPIIT) has released second edition of Startup Ranking for 2019.

States’ Start-up Ranking

  1. The DPIIT launched this exercise to rank states and UTs on the basis of measures being taken by them to promote startups, and added that it was consulting states for their ranking framework.
  2. Erstwhile DIPP began this exercise from January, 2016.
  3. The State Startup Ranking Framework is aimed at bringing to fore progress made by States/UTs for promoting startup ecosystem.
  4. The report intends to foster competitiveness and propel the states/UTs to work proactively while facilitating states/UTs to identify learn and replicate good practices.

About 2019 Framework

  1. The Ranking Framework 2019 comprises of 7 pillars and 30 action points.
  2. DPIIT has prepared the framework after several rounds of consultation with State and UT Governments.
  3. DPIIT also proposes to recognise States and UTs for their exemplary performance in seven pillars of the ranking framework:
  • Institutional support
  • Simplifying regulations
  • Easing public procurement
  • Incubation support
  • Seed funding support
  • Venture funding support
  • Awareness and outreach related activities

START-UP India Launch by Prime Minister Modi on 16th January, 2016, aimed at celebrating the entrepreneurship spirit of country’s youth and has been attended by CEOs and founders of top startups (over 1500) from across the country. Let’s see this in brief!

<In Part I, we have taken a glance on Simplification and Handholding of Start up Plan, rest part will be covered in Part II of this series>

What is Start up India programme and its mandates?

  • Startup India is a flagship initiative, intended to build a strong ecosystem for nurturing innovation and Startups in the country that will drive sustainable economic growth and generate large scale employment opportunities.
  • In order to meet the objectives of the initiative, Government of India is announcing this Action Plan that addresses all aspects of the Startup ecosystem.

How can this Action Plan help accelerate the Startup movement?

  • It is spread across movement from digital/ technology sector to a wide array of sectors including agriculture, manufacturing, social sector, healthcare, education, etc.
  • From existing tier 1 cities to tier 2 and tier 3 cities including semi-urban and rural areas.

The Action Plan is divided across the following areas:

  • Simplification and Handholding
  • Funding Support and Incentives
  • Industry-Academia Partnership and Incubation

What is the exact definition of a Startup ?

  • Startup means an entity, incorporated or registered in India not prior to 5 years, with annual turnover not exceeding INR 25 crore in any preceding financial year.
  • Provided that such entity is not formed by splitting up, or reconstruction, of a business already in existence.

What will be the Action plan for Simplification and Handholding task?

#Compliance Regime based on Self-Certification

  • To reduce the regulatory burden on Startups thereby allowing them to focus on their core business and keep compliance cost low.
  • Startups shall be allowed to self-certify compliance (through the Startup mobile app) with 9 labour and environment laws (refer below).
  • In case of the labour laws, no inspections will be conducted for a period of 3 years.
  • 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. [Can you think of question on white category in Prelims?]

#Startup India Hub

To create a single point of contact for the entire Startup ecosystem and enable knowledge exchange and access to funding.

How will “Startup India Hub” be a key stakeholder in this vibrant ecosystem?

  • Work in a hub and spoke model and collaborate with Central & State governments, Indian and foreign VCs, angel networks, banks, incubators, legal partners, consultants, universities and R&D institutions.
  • To all young Indians who have the courage to enter an environment of risk, the Startup India Hub will be their friend, mentor and guide to hold their hand and walk with them through this journey.

#Legal Support and Fast-tracking Patent Examination at Lower Costs

  • 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.
  • The scheme for Startup Intellectual Property Protection (SIPP) shall facilitate filing of Patents, Trademarks and Designs by innovative Startups.

Various measures being taken in this regard include:

#1. Fast-tracking of Startup patent applications:

Patent application of Startups shall be fast-tracked for examination and disposal, so that they can realize the value of their IPRs at the earliest possible.

#2. Panel of facilitators to assist in filing of IP applications:

Facilitators will be responsible for providing general advisory on different IPRs as also information on protecting and promoting IPRs in other countries.

#3. Rebate on filing of application:

Startups shall be provided an 80% rebate in filing of patents vis-a-vis other companies. This will help them pare costs in the crucial formative years.

#Relaxed Norms of Public Procurement for Startups

  • 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.

#Faster Exit for Startups

  • To make it easier for Startups to wind up operations.
  • 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.

Let us know what do you think on this question?

#Q. How will start ups create an ecosystem that can flourish with ‘Digital India’ initiative? Discuss with examples.


 

Published with inputs from Arun
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