Startup Ecosystem in India – Issues, Challenges & Opportunities | UPSC

Startups in India Notes for UPSC –

• Start-up means an entity, incorporated or registered in India not prior to five years, with annual turnover not exceeding INR 25 crores in any preceding financial year
• A startup is a business venture in the form of a company established to do a viable business.

Startups 2.0 for UPSC
NASSCOM report on startups for 2019

It says India ranks 3rd in world for new startups with total funding of 5 billion dollars. It employs around 80000 people.

Problems that startups face in India

• Venture capital doesn’t flow in India directly but from safe havens like Mauritius and Singapore.

• Startups require clear and simple taxation policy,

• Clear policy about creation as well as bankruptcy.

• However, they were concentrated only in Delhi, Mumbai and Bengaluru.

• An app based or e-commerce startup can easily get funds more than manufacturing or food processing startup.

• High layoffs have been seen. Thus, IIT B has tightened placement procedures.

Startup schemes by Government of India –

• India Aspiration Fund announced under SIDBI with a corpus of 400 crore. The main function will be to fund startups which are not attracting venture capital now but will do in the near future. LIC will be a coinvestor.

• Atal Innovation mission formulated by NITI Aayog to fund research in institutes which will help innovative minds to start enterprises.

• Another fund called Sidbi make in india loan for enterprises SMILE will provide loans for MSME

• Role of Market- Private participation required like Tata had launched a private incubation center Elxsi and T-Hub

• Role of universities- Incubation center in IITs.

• Bharat Innovation Fund will be managed and coordinated by CIIE at the IIM, Ahmedabad. It will support innovation and innovative startups in areas of healthcare and life-sciences, sustainability, and digital technologies.

• Unique Business Identity Number for budding entrepreuners to set up business without delays. Under DIPP

• Start-Ups Intellectual Property Protection (SIPP) scheme for promoting Intellectual Property Rights awareness for startups and to encourage creativity and innovation amongst them.

• Startup ranking framework for states and UT

• Govt exempts startups from paying the angel investment tax after seeking approval from a designated board

Startup India Scheme

• 3 year break from income tax

• 10000cr corpus over 4 years to be invested in SEBI monitored Venture Funds

• 500 cr per year Credit Guarantee Mechanism • 90 day exit policy through Bankruptcy Code • Mobile App for faster permissions and approvals.

• Faster registration of patents and scheme to protect IPR • no compromise on zero effect zero defect policy • Plan to create 2.5 lakh dalit entrepreneurs.

• 10000 crore Fund of Funds for Startup given nod. It comes under SIDBI and will invest in Alternate Investment Fund.

Startup challenges in India-

• Forex regulations are a major reason for re-domiciling.

• Cost of the loan is high.

• Tax laws need more clarifications and simplification.

• Taxes on alternative investment funds and venture capital need rationalization.

• Fund set up by government is not enough to cater the needs of the all sections of the entrepreneurs; hence it becomes very difficult for the startups to mobilize funding.

Issue of Angel Tax-

• Any investment by an angel investor whivh is beyond the fair market value of the startup will be treated as income and taxed at 30% rate. This was done to stop money laundering through startups

• Govt finally changed the definition of startups to give them relief from Angel TaxTax

• Angel investment not exceeding 25 crore, turnover not exceeding 100 crore and startup being not older than 10 years.

Standup India scheme

• Baba Saheb on economics of caste. Need for dalit capitalism.

• The Union Cabinet has recently approved the “Stand Up India Scheme” to promote entrepreneurship among SC/ST and Women entrepreneurs

• The Scheme is intended to facilitate at least two such projects per bank branch, on an average one for each category of entrepreneur.

• Refinance window through Small Industries Development Bank of India (SIDBI) with an initial amount of Rs. 10,000 crore.

• Creation of a credit guarantees mechanism through the National Credit Guarantee Trustee Company (NCGTC).

• 10 lakh to Rs. 100 lakh for Greenfield enterprises in the non-farm sector set up by such SC, ST and Women borrowers.

Video on Startups in India