Mains Paper 3: Economy | Development and employment
From UPSC perspective, the following things are important:
Prelims level: Particular schemes given in the article
Mains level: Issue of employment is specially mentioned in the Mains Syllabus.
The article talks about India’s Start-up ecosystem in a very brief manner
India’s start-up atmosphere
Recently held, the Global Entrepreneurship Summit has turned the spotlight once again on India’s booming start-up economy
Over the past three years, India has become the third largest start-up ecosystem
According to data compiled by Inc42, over $9.4 billion in funding has flowed into Indian start-ups in 2017, up 1.3 times over last year(as of September)
There are more than a hundred funds registered with markets regulator Securities and Exchange Board of India alone
Efforts done by the Central Government for funding of start-ups
The Centre alone has announced a corpus of Rs. 10,000 crore to fund start-ups, of which 75 have actually received some money so far
India’s policy on foreign direct investment was specifically amended to include start-ups,
Start-ups are now allowed to accept up to 100% of their funding requirement from foreign venture capital investors
Various schemes by the central government
There are many schemes run by various arms of the government, all of which provide tax breaks, incentives, grant money and other forms of assistance to wannabe technopreneurs
At last count, there were more than 44 such schemes
Technical Assistance: The Department of Electronics and Information Technology offers technical assistance for filing patents
And up to Rs. 15 lakh per invention, or up to 50% of the costs incurred in filing a patent
The department has multiplier grants scheme which provide up to Rs. 2 crore for start-ups in the IT services, analytics, artificial intelligence, and Internet of things space
Funds for Borrowings: The Credit Guarantee Fund Trust for Micro and Small enterprises underwrites borrowings of up to Rs. 1 crore per unit
Encouraging initiative: The Centre’s Atal Innovation Mission funds up to Rs. 10 crore for each Atal Incubation Centre set up under the scheme
The Atal Mission also provides funding to schools to set up ‘Atal Tinkering Laboratories’ to spur the spirit of innovation and enterprise amongst the young
Efforts done by the State Governments
As many as 16 State start-up policies are listed on the Startup India hub
States like Tamil Nadu and Kerala had rolled out schemes of their own
Important question: Can start-up ecosystem actually be created through state intervention and policy?
There is mixed evidence from around the world
Israel is the most celebrated success story of state intervention and policy creating and shaping an innovations powerhouse
It set up a technology incubator programme way back in 1991, under the office of its Chief Scientist
Since then, it has gone on to become a major world power in IT innovation, as well as innovation in the pharma sector
Many countries have tried to follow the Israel model, but with far less success
This is probably because Israel’s policy was clearly focussed in a few areas of technology where (1) it enjoyed a human capital advantage, (2) the ecosystem was small and manageable, and (3) the policy was administered by science and technology experts rather than administrative generalists
On the other hand, the U.S., with the largest start-up ecosystem has no clear start-up policy, though almost every state and several major cities have specific policies
Future of Start-ups in India
It is too early to tell in India’s case
But given the proliferating schemes, the ever-growing involvement of the government
And the lack of a targeted focus, we may end up repeating the mistakes of others
Mains Paper 2: Governance | Government policies and interventions for development in various sectors and issues arising out of their design and implementation.
The following things are important from UPSC perspective:
Prelims Level: Particulars of the FFS
Mains level: The article shows the inability of implementing the FFS scheme, by the government. Government needs to counter the issue.
Fund-of-Funds for start-ups (FFS) is showing slow progress
FFS was launched in line with the Start-up India Action Plan of the Government
It is a Rs 10,000-crore Fund
The fund under the plan has made slow progress with only about Rs 70 crore having been disbursed to start-ups until the beginning of this month
Aim of launching the fund
The Fund was launched with aim to invest in local venture capital funds
It has made commitments to 62 start-ups
All these 62 start-ups were backed by Alternative Investment Funds (AIFs) where state-owned SIDBI (Small Industries Development Bank of India) acted as a limited partner
What is an AIF: An AIF is any fund established or incorporated in India that is a privatelypooled investment vehicle, which collects funds from investors(Indian or foreign) for investing it in accordance with a defined investmentpolicy for the benefit of its investors
News: Oil and Natural Gas Corporation (ONGC) unveiled a Rs.100 crore start-up fund to foster, nurture and incubate new ideas related to the oil and gas sector
The initiative, christened as ONGC Start-up’, is in line with the Government of India’s initiative ‘Start-up India’
ONGC will provide the entire support chain for start-ups including seed capital, hand-holding, mentoring, market linkage and follow-ups
Aim: To increase the contribution of implementable ideas in the oil and gas sector
ONGC is setting up a dedicated website to take this initiative forward
Impact: Would promote entrepreneurship among the younger Indians by creating an ecosystem that is conducive for growth of start-ups in the oil and gas sector, which has a huge potential for technology-enabled ideas
Analysis: Start Up India mission by GOI is to encourage entrepreneurial spirit among youngsters. It has been provided on the motto – “Earlier youngsters used to look for employment but now youngsters will be giving employment. “
News: Central Board of Direct Taxes (CBDT) has notified the much awaited tax exemption on investments above fair market rate for startups
Impact: Startups can now issue shares to investors at higher than fair value without worrying about tax consequences
Fair value: Since startups have unique business models and might not necessarily have a publicly traded comparable, fair value is a value determined by an independent third party, for example, auditors
Background: Under the Indian tax law, if an Indian company receives investment from an Indian resident that exceeds the fair value of shares, then the excess amount is taxed as income of the Indian company
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 Indianot 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 examinationof 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.