Startup India Report, Lecture notes of Entrepreneurship

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Action

Plan

January 16, 2016

What if your idea is not just an idea?

What if it sees light?

What if it’s really born?

What if you can get someone to believe in it?

And help you nurture it?

What if you can set a clear path for it?

What if it can actually travel?

What if it grows and blooms?

What if the whole world embraces it?

What if your idea is not just an idea?

Table of Contents

# Details

Section 1 Introduction Section 2 Action Plan: Proposed Schemes and Incentives Section 2.1 Simplification and Handholding

1. Compliance Regime based on Self-certification
2. Startup India Hub
3. Rolling out of Mobile App and Portal
4. Legal Support and Fast-tracking Patent Examination at LowerCosts
5. Relaxed Norms of Public Procurement for Startups
6. Faster Exit for Startups Section 2.2 Funding Support and Incentives
7. Providing Funding Support through a Fund of Funds with aCorpus of INR 10,000 crore
8. Credit Guarantee Fund for Startups
9. Tax Exemption on Capital Gains
10. Tax Exemption to Startups for 3 years
11. Tax Exemption on Investments above Fair Market Value

Section 2.3 (^) Industry-Academia Partnership and Incubation

12. Organizing Startup Fests for Showcasing Innovation andProviding a Collaboration Platform
13. Launch of Atal Innovation Mission (AIM) with Self-Employmentand Talent Utilization (SETU) Program
14. Harnessing Private Sector Expertise for Incubator Setup
15. Building Innovation Centres at National Institutes
16. Setting up of 7 New Research Parks Modeled onthe Research Park Setup at IIT Madras
17. Promoting Startups in the Biotechnology Sector
18. Launching of Innovation Focused Programs for Students
19. Annual Incubator Grand Challenge

Annexure I Definition of a Startup (only for the purpose ofGovernment schemes)

Annexure II Acronyms

Annexure I (^) Government schemes)

Annexure II Acronyms

Startup India: Action Plan

Page

2

Startup India: Action Plan

“I see startups,

technology

and innovation as

exciting and effective

instruments for

India’s transformation.”

Shri Narendra Modi

Prime Minister of India

Startup India is a flagship initiative of the Government of India, intended to build a

strong eco-system for nurturing innovation and Startups in the country that will drive sustainable

economic growth and generate large scale employment opportunities. The Government through

this initiative aims to empower Startups to grow through innovation and design.

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. With this Action Plan the Government

hopes to accelerate spreading of the Startup movement:

• From digital/ technology sector to a wide array of sectors including agriculture,

manufacturing, social sector, healthcare, education, etc.; and

• From existing tier 1 cities to tier 2 and tier 3 citites 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

The definition of a Startup (only for the purpose of Government schemes) has been detailed in

Annexure I.

Section 2.1 - Action Plan

Simplification and Handholding

No tunnel.

Only light.

6

Objective To reduce the regulatory burden on Startups thereby allowing them to focus on their core business and keep compliance cost low

Details Regulatory formalities requiring compliance with various labour and environment laws are time consuming and difficult in nature. Often, new and small firms are unaware of nuances of the issues and can be subjected to intrusive action by regulatory agencies. In order to make compliance for Startups friendly and flexible, simplifications are required in the regulatory regime. Accordingly, the process of conducting inspections shall be made more meaningful and simple. 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. Startups may be inspected on receipt of credible and verifiable complaint of violation, filed in writing and approved by at least one level senior to the inspecting officer. 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.

Labour Laws:

- The Building and Other Constructions Workers’ (Regulation of Employment & Conditions of Service) Act, 1996 - The Inter-State Migrant Workmen (Regulation of Employment & Conditions of Service) Act, 1979 - The Payment of Gratuity Act, 1972 - The Contract Labour (Regulation and Abolition) Act, 1970 - The Employees’ Provident Funds and Miscellaneous Provisions Act, 1952 - The Employees’ State Insurance Act, 1948

Environment Laws:

- The Water (Prevention & Control of Pollution) Act, 1974 - The Water (Prevention & Control of Pollution) Cess (Amendment) Act, 2003 - The Air (Prevention & Control of Pollution) Act, 1981

1 Compliance Regime based on Self-Certification

Startup India: Action Plan

Objective To serve as the single platform for Startups for interacting with Government and Regulatory Institutions for all business needs and information exchange among various stakeholders

Details In order to commence operations, Startups require registration with relevant regulatory authorities. Delays or lack of clarity in registration process may lead to delays in establishment and operations of Startups, thereby reducing the ability of the business to get bank loans, employ workers and generate incomes. Enabling registration process in an easy and timely manner can reduce this burden significantly.

Besides, Startups often suffer from the uncertainty regarding the exact regulatory requirements to set up its operations. In order to ensure that such information is readily available, it is intended that a checklist of required licenses covering labour licensing, environmental clearances etc. be made available. Currently, the Startup ecosystem in India also lacks formal platform(s) for Startups to connect and collaborate with other ecosystem partners.

Towards these efforts, the Government shall introduce a Mobile App to provide on-the-go accessibility for:

- Registering Startups with relevant agencies of the Government. A simple form shall be made available for the same. The Mobile App shall have backend integration with Ministry of Corporate Affairs and Registrar of Firms for seamless information exchange and processing of the registration application - Tracking the status of the registration application and anytime downloading of the registration certificate. A digital version of the final registration certificate shall be made available for downloading through the Mobile App - Filing for compliances and obtaining information on various clearances/ approvals/ registrations required - Collaborating with various Startup ecosystem partners. The App shall provide a collaborative platform with a national network of stakeholders (including venture funds, incubators, academia, mentors etc.) of the Startup ecosystem to have discussions towards enhancing and bolstering the ecosystem - Applying for various schemes being undertaken under the Startup India Action Plan

The App shall be made available from April 01, 2016 on all leading mobile/ smart devices’ platforms. The Startup portal shall have similar functionalities (being offered through the mobile app) using a richer web-based User Interface.

3 Rolling-out of Mobile App and Portal

8

Startup India: Action Plan

Department of Industrial Policy and Promotion

Objective

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 examination of patent applications and rebate in fees.

Details

Intellectual Property Rights (IPR) are emerging as a strategic business tool for any business organization to enhance industrial competitiveness. Startups with limited resources and manpower, can sustain in this highly competitive world only through continuous growth and development oriented innovations; for this, it is equally crucial that they protect their IPRs. 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:

• Fast-tracking of Startup patent applications: The valuation of any innovation goes up immensely, once it gets the protective cover of a patent. To this end, the 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.
• Panel of facilitators to assist in filing of IP applications: For effective implementation of the scheme, a panel of “facilitators” shall be empanelled by the Controller General of Patents, Designs and Trademarks (CGPDTM), who shall also regulate their conduct and functions. Facilitators will be responsible for providing general advisory on different IPRs as also information on protecting and promoting IPRs in other countries. They shall also provide assistance in filing and disposal of the IP applications related to patents, trademarks and designs under relevant Acts, including appearing on behalf of Startups at hearings and contesting opposition, if any, by other parties, till final disposal of the IPR application.
• Government to bear facilitation cost: Under this scheme, the Central Government shall bear the entire fees of the facilitators for any number of patents, trademarks or designs that a Startup may file, and the Startups shall bear the cost of only the statutory fees payable.
• 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.

The scheme is being launched initially on a pilot basis for 1 year; based on the experience gained, further steps shall be taken.

4

Legal Support and Fast-tracking Patent Examination at Lower Costs

9

Department of Industrial Policy and Promotion

6 Faster Exit for Startups

Objective

To make it easier for Startups to wind up operations

Details

Given the innovative nature of Startups, a significant percentage fail to succeed. In the event of a business failure, it is critical to reallocate capital and resources to more productive avenues and accordingly a swift and simple process has been proposed for Startups to wind-up operations. This will promote entrepreneurs to experiment with new and innovative ideas, without having the fear of facing a complex and long-drawn exit process where their capital remain interminably stuck.

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. In such instances, an insolvency professional shall be appointed for the Startup, who shall be in charge of the company (the promoters and management shall no longer run the company) for liquidating its assets and paying its creditors within six months of such appointment. On appointment of the insolvency professional, the liquidator shall be responsible for the swift closure of the business, sale of assets and repayment of creditors in accordance with the distribution waterfall set out in the IBB. This process will respect the concept of limited liability.

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Section 2.2: Funding Support

and Incentives

Disrupters

wanted.

Startup India: Action Plan

8

Objective

To catalyse enterpreneurship by providing credit to innovators accross all sections of society

Details

In order to overcome traditional Indian stigma associated with failure of Startup enterprises in general and to encourage experimentation among Startup entrepreneurs through disruptive business models, credit guarantee comfort would help flow of Venture Debt from the formal Banking System.

Debt funding to Startups is also perceived as high risk area and to encourage Banks and other Lenders to provide Venture Debts to Startups, Credit guarantee mechanism through National Credit Guarantee Trust Company (NCGTC)/ SIDBI is being envisaged with a budgetary Corpus of INR 500 crore per year for the next four years.

Credit Guarantee Fund for Startups

14

Department of Industrial Policy and Promotion

9

Objective

To promote investments into Startups by mobilizing the capital gains arising from sale of capital assets

Details

Due to their high risk nature, Startups are not able to attract investment in their initial stage. It is therefore important that suitable incentives are provided to investors for investing in the Startup ecosystem. With this objective, exemption shall be given to persons who have capital gains during the year, if they have invested such capital gains in the Fund of Funds recognized by the Government.

This will augment the funds available to various VCs/AIFs for investment in Startups.

In addition, existing capital gain tax exemption for investment in newly formed manufacturing MSMEs by individuals shall be extended to all Startups. Currently, such an entity needs to purchase “new assests” with the capital gain received to avail such an exemption. Investment in ‘computer or computer software’ (as used in core business activity) shall also be considered as purchase of ‘new assets’ in order to promote technology driven Startups.

Tax Exemption on Capital Gains

15