Startup India Action Plan: Hitting the Iron when it is "Not" Hot

Narendra Modi’s Government, since its inception in the year 2014, has been working specifically (as it appears to the public) to uplift the economic as well as technology status of the country. After a successful implementation of the “Digital India” plan, yet another innovative plan came in picture on the 16^th day of January, 2016 titled “Startup India”.

As the name suggests, this novel action plan extends a helping hand towards all the “Start-up enterprises” in India. Apart from the help being bestowed to these novel firms, the Action Plan on Startup India (as launched on 16^th January, 2016) also defines as to, ‘which firms can be called a STARTUP’?

To ascertain whether a firm falls in the category of a Startup, with respect to the above mentioned definition, an entity-

1. Must be a Private Ltd. Company/ Limited Liability Partnership/ Partnership firm,

2. Must be aged between 0-5 years (from its incorporation or registration in India),

3. Must not have a turnover of more than INR 25 crores in either of the preceding years.

4. Must develop and commercialize:

           4.1. A new product or service or process; OR

           4.2. A significantly improved existing product or service or process.

      5. Must get an approval, w.r.t. innovative nature of business, from Department of Industrial Policy &     Promotion (DIPP), through:

           5.1. A recommendation letter by incubator in post graduate Indian College, or

           5.2. A recommendation letter by incubator funded by GOI, or

           5.3. A recommendation letter by Incubator recognized by GOI, or

           5.4. A fund provided by an Incubation Fund/ Angel Fund/ Private Equity Fund/ Accelerator/Angel             Network, or

           5.5. A patent granted by the Indian Patent and Trademark Office in the nature of business being                 promoted.

Seems like a good plan, one may wonder! 

No doubt, the Action plan is meticulously drafted and has taken into regard the minute details of the ‘Startup movement’. There are multiple businesses that are marginally reliant on technology and/or IP but if they actually solve or aim to solve a problem, they should fall within the definition of a startup.

Compliance made easy

A severe reduction is needed, when it comes to complying with the legal measures. Though, the legal procedures are the same, but the process of complying with the same has become fairly easier now. All credit goes to the Action Plan. The legal compliances with regard to Labour laws and Environment Laws can be taken care of with a mere mobile application. It is that easy. Moreover, the inspections to be carried out by various departments have been done away with, for the initial 3 years.

Easy voluntary Winding-up

A voluntary winding up process, which used to take years, can now be done within 90 days of the application made. This specific mandate is listed out in the Insolvency and Bankruptcy Bill, 2015, which was tabled in Lok Sabha in December, 2015 and currently awaits the assent of the same.

Another big support, provided to Startup firms, comes in the form of exemption from paying income tax, out of profits, in the initial 3 years after the launch of the venture. This specific point has turned a lot of eyeballs towards the Startup India movement.

Exemption from paying income tax

However, the point is still unclear on whether this privilege commences as soon as a startup firm is incorporated OR from the point when it starts gaining profit? Nonetheless, this exemption is a brave effort from the Government’s side.

Public Procurement norms are relaxed for startups

Another much needed effort was revealed in the Action Plan under the title, ‘Relaxed norms of Public Procurement for startups’ in order to increase Private participation in Government floated tenders. In order to provide equal platform to Startups, the Government shall exempt Startups from the eligibility criteria of “prior experience/ turnover”. However, this specific mandate will only extend to the manufacturing industries sector.

CONCLUSION

There is no doubt that Modi government should be applauded for this wonderful initiative. It is good to see the Government taking stand for innovation. However, despite of a well drafted Action Plan, it is not very sure as to how the effects of this Plan are going to be...

Whether the 3 year exemption from income-tax will be of any help to the firms, practically? Whether the system will appear as transparent as it seems on paper?...         

Though, prima facie, it appears to be a very profitable affair for the entrepreneurs and their startup firms, but let us not presume things too quickly.