Economics Prelims cum Mains

Startup India fund falls short of allocation target by over Rs 1,000cr

In News

  • The Startup India fund has fallen short of its capital allocation target by around Rs 1,000-1,200 crore.
  • The government had launched the corpus to help startups get funding in early stages. This fund doesn’t directly invest in startups. Instead, it allocates money to VC funds, which are required to invest at least twice the amount of contribution received from the government.
  • The fund has managed to disburse only Rs 2,265 crore to Venture Capital funds against a disbursal target of Rs 3,300-3,500 crore by the end of March, 2019.

Start Up India Scheme

Objective

  • Launched in January 2016, by the Ministry of Commerce and Industry (Department for Promotion of Industry and Internal Trade), Startup India is a flagship initiative of the Government that aims to
    • Build a strong ecosystem that is conducive for the growth of startup businesses
    • Drive sustainable economic growth and
    • Generate large scale employment opportunities

 

Eligibility Criteria

  • Incorporated as a private limited company or registered as a partnership firm or a limited liability partnership (LLP).
  • Should be working towards innovation/ improvement of existing products, services and processes and should have the potential to generate employment/create wealth
  • Headquartered in India
  • Incorporated not more than 10 years ago
  • Annual turnover less than INR 100 Crores in any of the previous years

 

Components

I) Simplification and Handholding

  • Compliance regime based on self-certification to reduce the regulatory burden
  • Startup India Hub to create a single point of contact for the entire startup ecosystem
  • Rolling-out of mobile app and portal for interacting with government and regulatory institutions and information exchange among various stakeholders
  • Legal support and fast-tracking patent examination at lower costs
  • Relaxed norms of public procurement
  • Faster exit

 

II) Funding Support and Incentives

  • Funding support through a fund of funds with a corpus of INR 10,000 crore
  • Credit Guarantee Fund
  • Tax exemption on capital gains to promote investments
  • Tax exemption for 3 years to promote growth and address working capital requirements

 

III) Industry-Academia Partnership and Incubation

  • Startup festivals for showcasing innovation and providing a collaboration platform
  • Launch of Atal Innovation Mission (AIM) with Self-Employment and Talent Utilization (SETU) program
  • Harness private sector expertise for incubator setup
  • Build innovation centres at national institutes for augmentation of incubation and R&D efforts
  • Setting up of New Research Parks modeled on the Research Park at IIT Madras
  • Launching of innovation focused programs for students to foster a culture of innovation
  • Annual Incubator Grand Challenge

Achievements

  • The buzz generated by the programme has helped open up a lot of opportunities for startups, VC investments have seen a moderate rise despite an overall fall in funding in 2018, which indicates a positive sentiment among the investors in the near term.
  • More than 15,000 startups have been recognised under the Startup India programme, creating around 1,50,000 jobs under them.

State intervention

  • Before Startup India was launched, just four states had their startup policies in place and now, 24 Indian states have introduced their own policies.
  • Several states have taken the onus to build their own incubators, coworking hubs, etc, to boost the innovation in the state.
  • Telangana, Andhra Pradesh, Odisha, Madhya Pradesh, and Gujarat are some other states that offer end-to-end support to startups and have come up with various initiatives to boost their respective ecosystems.

Global interest

  • Exchange programmes with foreign startups in countries like Germany and SAARC nations has opened new doors of opportunities for the stakeholders in the startup ecosystem.
  • The formation of international startup corridors with countries like Japan, the US, the UK, Israel, and Portugal, among others, has boosted the startup and cross-border investor sentiment.
  • Startup-friendly policies and tax relief measures from the government have played a key role in increasing the foreign investments in the form of foreign venture capital and private equity funds especially from Japan, Europe, and West Asia.
  • It has also been attracting globally-acclaimed investors and multinationals to leverage Indian tech startups to supplement their technology.

Procedural fillip

  • Steps have been taken to ease out the complex bureaucratic red tape for startups.
  • For instance, the  National Portal of India significantly helps in facilitating a single window access to information and services provided by the government for startups.
  • Similarly, the Startup India Online Hub is another platform which facilitates all stakeholders of the Indian entrepreneurial ecosystem to connect and engage with each other.
  • The eBiz portal enables Indian startups to get various licenses and approvals in a hassle free manner.
  • Despite all the existing gaps and ongoing challenges, India has climbed up to the 77th position in UN’s Ease of Doing Business Ranking.

Shortcomings

  • The pace of policy formulation in the country has been quite slow, which leads to a dampening in the investor sentiment.
  • According to a survey of 15K startups, only 18% of the respondents said they actually benefited from the Startup India scheme. Only 163 startups had benefited from the Fund of Funds in the last three years till December 31, 2018, and the fund allocation and distribution is coming down further. This poses a question over the efficacy and cost-effectiveness of the scheme.
  • The government had set an ambitious target of creating 1.8 Mn jobs by 2020 under the Startup India action plan. But a reality check shows that at the moment, this plan is but a moonshot.
  • Although the angel tax issue has been resolved for the time being but it had emerged as a serious threat, leading to a decline in angel investments in the last two years.
  • Gender parity is still an issue in the startup ecosystem and the revelations of #MeToo left the Indian startup ecosystem disturbed.
  • Further, there are still many infrastructural and bureaucratic hurdles that continue to plague the startup ecosystem.

 

 Proposals in pipeline

  • Sidbi has now touched the commitment figure of Rs 3,000 crore without mentioning any timeline. The fund is supposed to be deployed during the 14th and 15th Finance Commission cycles, which ends in 2025.
  • It typically takes about 4-5 months for a VC to apply and get the approval for capital.Sidbi has plans to cut the overall timeline for VCs to apply and finally get the capital.
  • The platform relating to the receipt of online application from the funds without any manual intervention is under preparation and will be operationalised soon
  • The government is also planning tax sops for startups with regards to the employee stock option programme (ESOP) in the budget next month.
  • The incumbent government has also proposed the idea of creating a Rs 20,000 crore seed fund to boost early stage startups.

Image result for startup india

Way Ahead

  • Widening the definition of startups to include later stage companies with a higher annual turnover and increasing exemption limit on equity investments will give the much needed boost to mid-sized startups.
  • The government needs to address the said concerns in order to push the Indian startup ecosystem on the path similar to that of Israel or Silicon Valley.

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