Startup India

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The Startup India initiative is a wide reaching that covers areas of policy including regulatory simplification, access to capital, and incubation.
What are the main aims and objectives?

The primary aim of Startup India is to catalyze a startup culture and build a strong, inclusive ecosystem for entrepreneurship and innovation. In addition to this the main objectives of Startup India are to: 

  1. Make India the Startup Capital of the World 

  1. Create world class entrepreneurs and companies 

  1. Support the next economic wave of upcoming startups and companies 

How does the program work?

The main functions of Startup India are to: 

  1. Simplify regulations: The initiative aims to make it easier for startups to navigate through bureaucratic processes by introducing measures such as self-certification compliance and a 90-day exit window in the bankruptcy code. 

  1. Provide funding and incentives: Startup India has allocated a funding pool of ₹10,000 crore and offers tax exemptions for the first three years of operation to support eligible startups. 

  1. Encourage industry-academia partnerships and incubation: The initiative promotes collaboration between educational institutions and startups, with the Ministry of Human Resource Development and the Department of Science and Technology partnering to set up startup support hubs in educational institutions. 

  1. Eliminate restrictive state government policies: Startup India seeks to remove barriers that hinder the growth of startups, making it easier for entrepreneurs to establish and grow their businesses. 

  1. Attract investments: The initiative aims to create a favorable environment for startups, attracting investments from companies such as SoftBank and Oracle. 

  1. Tax holiday for 3 years, recommendation made for 5 years extendable to 7 years 

  1. Relaxation of qualification criteria for startups for government procurement 

  1. Credit Guarentee Scheme for banks to provide non-collateral loans for startups 

  1. Creation of incubators, tinkering labs, business technology parks  

  1. Provide information for startups and to connect different players in the ecosystem 

An entity shall be considered as a ‘startup’ if it meets the following criteria- 

a)  Up to five years from the date of its incorporation/registration. After 5 years of registration or incorporation, the entity will cease to be a startup. Entity here is a Privite Limited Company as defined under the Companies Act 2013. Registered Partnership as defined under the Partnerships Act 1932 or Limited Liability Partnership as defined under Limited Liability Partnership Act 2002.  

b)  If its turnover for any of the financial years has not exceeded Rupees 25 crore. If tunrover exceeds 25 crore, the entity ceases to be a startup. Turnover as defined in the Companies Act 2013 

c)  It is working towards innovation, development, deployment or commercialization of new products, processes or services driven by technology or intellectual property. An entity is considered to be working towards innovation, development, deployment or commercialization of new products, processes or services driven by technology or intellectual property if it aims to develop and commercialize a new product or service or process; or a significantly improved existing product or service or process, that will create or add value for customers or workflow. 

d) Such entity should not be formed by splitting up or reconstruction of an existing business  

What is the overall cost?

The annual budget for Startup India in the 2022-23 fiscal year includes an allocation of Rs 283.5 crore (approx $34 million) for the Startup India Seed Fund Scheme. Additionally, the budgetary allocation for the Fund of Funds for Startups stands at Rs 1,000 crore. Other allocations, such as the Market Access Initiative and Interest Equalisation Scheme, have been increased to Rs 200 crore and Rs 2,621.5 crore, respectively, for the 2022-23 financial year. 

How was it implemented?

In order to obtain tax benefits, a startup as per the above definition shall be required to obtain a certificate of an eligible business from the Inter-Ministerial Board of Certification consisting of: 

a)  Joint Secretary, Department of Industrial Policy and Promotion 

b)  Representative of Department of Science and Technology 

c)  Representative of Department of Biotechnology 

The process of recognition as a ‘startup’ shall be through mobile app/portal of the Department of Industrial Policy and Promotion. Startups will be required to submit a simple application with any of following documents: 

a)  a recommendation (with regard to innovative nature of business), in a format specified by Department of Industrial Policy and Promotion, from any Incubator established in a post- graduate college in India 

b)  a letter of support by any incubator which is funded (in relation to the project) from Government of India or any State Government as part of any specified scheme to promote innovation 

c)  a recommendation (with regard to innovative nature of business), in a format specified by Department of Industrial Policy and Promotion, from any Incubator recognized by Government of India 

d)  a letter of funding of not less than 20 per cent in equity by any Incubation Fund/Angel Fund/Private Equity Fund/Accelerator/Angel Network duly registered with Securities and Exchange Board of India that endorses innovative nature of the business. Department of Industrial Policy and Promotion may include any such fund in a negative list for such reasons as it may deem fit 

e)  a letter of funding by Government of India or any State Government as part of any specified scheme to promote innovation 

f)  a patent filed and published in the Journal by the Indian Patent Office in areas affiliated with the nature of business being promoted. 

What impact has been measured?

Startup India can demonstrate that as of May 2023: 

a) 99,380 startups have been recognised 

b) There are over 640,000 users on the Startup India portal 

c) 10,000 Tinkering Labs have been created 

d) 69 Incubation Centres have been created 

e) 2900+ startups have been supported through Atal Innovation Mission (AIM) 

f) including 900+ women led startups  

What lessons can be learned?

Startup India, while widely praised for promoting innovation and entrepreneurship, has also faced several criticisms. Some of the key concerns are: 

  1. Inadequate funding: Critics argue that the funding provided by the government to startups is insufficient, leading to difficulties in sustaining and scaling their businesses. Many startups continue to rely on private investments, resulting in financial constraints. 

  1. Slow pace of implementation: The bureaucratic processes and red tape have been criticized for delaying the approval and disbursement of funds, subsidies, and other benefits under the Startup India initiative. This has led to frustration among entrepreneurs, who often struggle with cash flow issues. 

  1. Strict eligibility criteria: Some critics claim that the eligibility criteria for registering as a startup under the initiative are too stringent, excluding many potential beneficiaries who could benefit from the program's support. 

CURATED BY

Rajneil Kamath

Policy Advisor
GEN INDIA
India