VOL. XL NO. 44 PAGES 48 NEW DELHI 30 JANUARY - 5 FEBRUARY 2016 ` 8.00

START-UP INDIA ACTION PLAN Deepak Razdan

The Start-up India Action Plan launched by the PrimeMinister, Mr Narendra Modi, on 16th January have

kindled the spirit of adventure among the country’syouth. They can now go ahead with their dream ven-tures, taking advantage of the friendly ecosys-tem of easy registrations, liberal finance, taxbenefits and a simplified regulatory system. Thediversity of business activity they adopt willboost economic growth, and trigger creation ofthousands of new jobs.

The Action Plan could not have come at amore opportune time. The country’s manufac-turing sector faced a slump, while the prospec-tive young entrepreneurs looked towards theGovernment for ease of doing business. TheAction Plan has done more than answering thecurrent situation. It has ended an era of doubtand fear for the young entrepreneurs. Theyneed not sit on the fence any longer and theycan take the risk which they wanted to.

In the generous package of a protective envi-ronment unveiled by the Action Plan, the youngentrepreneurs can see a friendly Government,eager to give them a helping hand. The buddingentrepreneurs are getting nurturing support, a strongerincubation network and even an easy exit route.

The most assuring among the Governmentannouncements was the Prime Minister’s speech whichis sure to galvanise the Start-up movement. He saidthose wanting to launch their own Start-ups were notdriven by money-motive but had a desire to bring abouta change. It was this spirit of adventure that the socie-ty had to respond to, he said. The country would wel-come a Start-up even if it created five jobs only, be itrelated to agriculture, medical technology, handicraftsectors, and not necessarily IT, he said. The objectiveshould be to solve a problem; the subject of businessshould not bother an entrepreneur, the Prime Ministersaid.

The Action Plan features which drew applause forthe Prime Minister included self-certification-basedcompliance system, no inspections for three years,cheaper patents, offer of public procurement, Start-up

Fests and special schemes for women. Mr. Modi askedthe youth not to worry about failures.

An analysis of the Start-up Action Plan shows that ithas more than met the expectations of the Start-up sec-tor. While some features like tax rebates will be effec-tive with the next Budget, the Action Plan should bringcheer on the issue of finance and credit also. India mayalready hold the third position globally in Start-ups, butthe Action Plan has brought more confidence in thesector.

Definition of Start-up: A strong point of the ActionPlan is a clear definition of what a Start-up is.The doc-ument says a Start-up is “an entity, incorporated or reg-istered in India not prior to five years, with annualturnover not exceeding Rs 25 crore in any preceding

financial year, and working towards innovation, devel-opment, deployment or commercialization of new prod-ucts, processes or services driven by technology orintellectual property.” A Start-up would cease to be a

Start-up the day it completes five years from thedate of incorporation or registration.

The definition makes it clear that a Start-upshould have something new to offer by way ofproduct or service, and this effort should involvetechnology or intellectual property, confirmingthereby the spirit and achievement of innovation ofthe young entrepreneur. To keep any doubts away,the Action Plan says that an entity “should not beformed by splitting up, or reconstruction, of a busi-ness already in existence.” This means that anentity to take benefit of the scheme has to be newand original, and existing units cannot be brokeninto smaller entities to take advantage of thescheme.

Certification: A Start-up shall be eligible for taxbenefits only after it has obtained certification vali-dating the innovative nature of the business fromthe Inter-Ministerial Board, set up for such purposeby the Department of Industrial Policy and

Promotion (DIPP). The validations will not absolve enti-ties of liability in case of misrepresentation. The DIPPwill also specify a format for recommendations by incu-bators on the innovative content of the business.

Ease of procedures: After definition of a Start up,another expectation from the Action Plan was the easeof procedures for registering a new venture or closing it,together with a simplified compliance regime. The ActionPlan has met this expectation and reduced the Start-ups’regulatory burden, thereby allowing them to focus ontheir core business and keep compliance cost low.

Registration: To commence operations, Start-upsrequire registration with relevant regulatory authorities.Delays or lack of clarity in the registration process may

Continued on page 46

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JOB HIGHLIGHTS

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lead to delays in establishmentand operations of Start-ups,thereby reducing the ability ofthe business to get bank loans,employ workers and generateincomes. Enabling registrationprocess in an easy and timelymanner can reduce this burdensignificantly, the Action Plan hasnoted.

The Start-ups even suffer fromthe uncertainty regarding theexact regulatory requirements toset up their operations. Toensure that such information isreadily available, a checklist ofrequired licenses covering labourlicensing, environmental clear-ances etc will be made available.Currently, the Start-up ecosys-tem in India also lacks formalplatforms for Start-ups to connectand collaborate with otherecosystem partners.

To meet all these require-ments, the Government shallintroduce a Mobile App toprovide on-the-go accessibilityfor registering Start-ups withrelevant agencies of theGovernment. A simple formshall be made available for thesame. The Mobile App shallhave back-end integration withthe Ministry of Corporate Affairsand the Registrar of Firms forseamless information exchangeand processing of the registra-tion application. The app willfacilitatetracking the status ofthe registration application,downloading of the registrationcertificate ,to file for compli-ances and obtaining informationon various clearances/approvals/ registrations, etc. asrequired,

To facilitate application for var-ious schemes being undertakenunder the Startup India ActionPlan, the App shall be madeavailable from 1st April, 2016 onall leading mobile/smart devices’platforms. A Start-up portal willalso be set up with similar func-tionalities (being offered throughthe mobile app) using a richerweb-based User Interface.

Self- Certification Compliance:Recognising that regulatory for-malities requiring compliancewith various labour and environ-ment laws are time consumingand difficult in nature, with newand small firms, often unaware ofnuances of the issues, subjectedto intrusive action by regulatoryagencies, the Action Plan hasmade the compliance regime forStart-ups friendly and flexible.Accordingly, the process of con-ducting inspections is being keptsimple and more meaningful.The Start-ups will be allowed toself-certify compliance (throughthe Start-up mobile app) withnine labour and environmentlaws. In case of the labour laws,no inspections will be conduct-ed for a period of three years.Start-ups may be inspected onreceipt of credible and verifiablecomplaint of violation, filed inwriting and approved by at leastone level senior to the inspectingofficer.

In case of environment laws,Start-ups which fall under the‘white category’ as defined by theCentral Pollution Control Board(CPCB)) would be able to self-certify compliance and only ran-dom checks would be carried outin such cases.

Intellectual Property Rights:In another thoughtful feature, theAction Plan offers legal supportand fast tracking of patent exam-ination at lower costs with the

objective to promote awarenessand adoption of IntellectualProperty Rights (IPRs)by Start-ups and facilitate them in protect-ing and commercializing theIPRs. The Government will pro-vide access to high qualityIntellectual Property servicesand resources, including fast-track examination of patent appli-cations and rebate in fees.

IPRs are emerging as a strate-gic business tool for any busi-ness organization to enhanceindustrial competitiveness. Start-ups with limited resources andmanpower, can sustain in thishighly competitive world onlythrough continuous growth anddevelopment oriented innova-tions; for this, it is equally crucialthat they protect their IPRs. Thescheme for Start-up IntellectualProperty Protection (SIPP) shallfacilitate filing of Patents,Trademarks and Designs byinnovative Start-ups.

Various measures being takenin this regard include fast-track-ing of Start-up patent applica-tions. for examination and dis-posal, so that they can realizethe value of their IPRs at the ear-liest possible.

For effective implementation ofthe scheme, a panel of “facilita-tors” shall be empanelled by theController General of Patents,Designs and Trademarks(CGPDTM), who shall also regu-late their conduct and functions.Under this scheme, the CentralGovernment shall bear the entirefees of the facilitators for anynumber of patents, trademarks ordesigns that a Start-up may file,and the Start-ups shall bear thecost of only the statutory feespayable. Start-ups shall be pro-vided an 80 per cent rebate in fil-ing of patents vis-à-vis othercompanies. This will help themspare costs in the crucial forma-tive years.

Public Procurement: TheStart-ups will benefit from relaxednorms for public procurement.The idea is to provide an equalplatform to Start-ups (in the man-ufacturing sector) vis-à-vis theexperienced entrepreneurs/ com-panies in public procurement.

Typically, whenever a tender isfloated by a Government entity orby a PSU, very often the eligibilitycondition specifies either “priorexperience” or “prior turnover”.Such a stipulation prohibits/impedes Start-ups from participat-ing in such tenders. At present,effective 1st April, 2015 CentralGovernment, State Governmentand PSUs have to mandatorilyprocure at least 20 per cent fromthe Micro Small and MediumEnterprises (MSME).

In order to promote Start-ups,Government shall exempt Start-ups (in the manufacturing sector)from the criteria of “prior experi-ence/ turnover” without anyrelaxation in quality standards ortechnical parameters. The Start-ups will also have to demonstraterequisite capability to executethe project as per the require-ments and should have their ownmanufacturing facility in India.Exit Process: To meet a majordemand of the sector, the ActionPlan makes it easier for Start-upsto wind up their operations. TheAction Plan says given the inno-vative nature of Start-ups, a sig-nificant percentage fail to suc-ceed. In the event of a businessfailure, it is critical to reallocatecapital and resources to moreproductive avenues and accord-ingly a swift and simple processhas been proposed for Start-ups

to wind-up operations. This willpromote entrepreneurs to exper-iment with new and innovativeideas, without having the fear offacing a complex and long-drawnexit process where their capitalremain interminably stuck.

The Insolvency andBankruptcy Bill (IBB) 2015,tabled in the Lok Sabha inDecember 2015 has provisionsfor the fast track and/or voluntaryclosure of businesses. In termsof the IBB, Start-ups with simpledebt structures or those meetingsuch criteria as may be specifiedmay be wound up within a periodof 90 days from making of anapplication for winding up on afast track basis.

In such instances, an insolven-cy professional shall be appoint-ed for the Start-up, who shall bein charge of the company for liq-uidating its assets and paying itscreditors within six months ofsuch appointment. Funding: Responding to therequirement of funding, theAction Plan says theGovernment will create a Fund ofFunds with a corpus of Rs10,000 crores. One of the keychallenges faced by Start-ups inIndia has been access tofinance. Often Start-ups, due tolack of collaterals or existingcash flows, fail to justify theloans. Besides, the high risknature of Start-ups wherein a sig-nificant percentage fail to take-off, hampers their investmentattractiveness.

In order to provide fundingsupport to Startups, Governmentwill set up a fund with an initialcorpus of Rs 2,500 crore and atotal corpus of Rs 10,000 croreover a period four years (i.e. Rs2,500 crore per year) . The Fundwill be in the nature of Fund ofFunds, which means that it willnot invest directly into Start-ups,but shall participate in the capitalof SEBI-registered VentureFunds.

The Start-ups will have thebenefit of a credit guarantee fundtoo. The idea is to catalyse entre-preneurship by providing creditto innovators across all sectionsof society. To overcome tradition-al Indian stigma associated withfailure of Start-up enterprises ingeneral and to encourage exper-imentation among Start-up entre-preneurs through disruptive busi-ness models, credit guaranteecomfort would help flow ofVenture Debt from the formalBanking System.

Debt funding to Start-ups isalso perceived as high risk areaand to encourage Banks andother lenders to provide VentureDebts to Startups, Credit guaran-tee mechanism through NationalCredit Guarantee Trust Company(NCGTC)/ SIDBI is being envis-aged with a budgetary Corpus ofRs 500 crore per year for the nextfour years. This measure willsurely open new sources of fund-ing for the Start-ups.Exemption from Capital GainsTax: The Start-ups will have thebenefit of capital gains taxexemption. The idea is to pro-mote investments into Start-upsby mobilizing the capital gainsarising from sale of capitalassets. Due to their high risknature, Start-ups are not able toattract investment in their initialstage.

Exemption shall be given topersons who have capital gainsduring the year, if they haveinvested such capital gains in theFund of Funds recognized by theGovernment. This will augment

the funds available to variousVCs/AIFs for investment in Start-ups. In addition, existing capitalgain tax exemption for invest-ment in newly formed manufac-turing MSMEs by individualsshall be extended to all Start-ups. Exemption from Income Tax:To promote the growth of Start-ups and address working capitalrequirements, the Start-ups willhave income tax exemption forthree years. The Action Plansays innovation is the essence ofevery Start-up. Young minds kin-dle new ideas every day to thinkbeyond conventional strategiesof the existing corporate world.

This fiscal exemption will sure-ly facilitate growth of businessand meet the working capitalrequirements during the initialyears of operations. The exemp-tion shall be available subject tonon-distribution of dividend bythe Start-up. Start-up Fests : The Action Planhas included a unique feature ofStart-up Fests to showcase theirinnovation and to provide nation-al and international visibility tothe Start-up ecosystem in India.For this, the Government hasproposed Start-up fests atnational and international stages.These fests would provide a plat-form to Start-ups in India toshowcase their ideas and workwith a larger audience compris-ing potential investors, mentorsand fellow Start-ups. As part of“Make in India” initiative,Government proposes to holdone Fest at the national levelannually to enable all the stake-holders of Start-up ecosystem tocome together on one platformand one Fest at the internationallevel annually in an internationalcity known for its Start-upecosystem.Innovation and Self-Employment : The Action Planhas also announced the launchof the Atal Innovation Mission(AIM) and Self-Employment andTalent Utilisation (SETU)Programme to serve as a plat-form for promotion of world-classInnovation Hubs, GrandChallenges, Start-up businessesand other self-employment activ-ities, particularly in technologydriven areas. The Atal InnovationMission (AIM) shall have twocore functions: Entrepreneurshippromotion through SETU, where-in innovators would be supportedand mentored to become suc-cessful entrepreneurs; andInnovation Promotion to providea platform where innovativeideas are generated. The maincomponents proposed to beundertaken as part of the missioninclude establishment of 500Tinkering Labs.Incubators: The Start-up indus-try’s complaint of absence of suf-ficient incubators is beinganswered by the Government.For professional management ofGovernment sponsored or fund-ed incubators, Government willcreate a policy and framework forsetting-up of incubators acrossthe country in public private part-nership. India currently lacksavailability of incubation facilitiesacross various parts of the coun-try. Incubation facilities typicallyinclude physical infrastructure,provision of mentorship support,access to networks, access tomarket, etc. Of all these features,physical infrastructure entailslarge capital investments whichcan generally be facilitated bythe Government. However, req-uisite skills for operating an incu-bator are pivotal as well, for

which expertise of the privatesector needs to be leveraged.

Considering this, Governmentshall encourage setting up of 35new incubators in existing institu-tions. Funding support of 40 percent (subject to a maximum ofRs 10 crore) shall be provided byCentral Government for estab-lishment of new incubators, forwhich 40 per cent funding by therespective State Governmentand 20 per cent funding by theprivate sector has been commit-ted. The incubator shall be man-aged and operated by the privatesector.

There will be 35 more new pri-vate sector incubators (in exist-ing institutions) for which a grantof 50 per cent (subject to a max-imum of Rs 10 crore) shall beprovided by CentralGovernment. These incubatorsshall also be managed and oper-ated by the private sector. Thefunding for setting up of the incu-bators shall be provided by NITIAayog as part of Atal InnovationMission. World Class Incubators: TheAction Plan seeks to support cre-ation of successful world classincubators in India throughAnnual Incubator GrandChallenge. The Government isproposing to make forward look-ing investments towards buildingworld class incubators. In its firstphase, the aim is to establish 10such incubators. To enable this,Government of India shall identi-fy and select 10 incubators whohave the potential to becomeworld class. These incubatorswould be given Rs 10 crore eachas financial assistance whichmay be used for ramping up thequality of service offerings. Biotechnology Sector: TheAction Plan outlines theGovernment plan to encourageStart-ups in the Biotechnologysector. The Biotechnology sectorin India is on a strong, growth tra-jectory. The Department ofBiotechnology endeavors toscale up the number of Start-upsin the sector by nurturing approx-imately 300-500 new Start-upseach year to have around 2,000Start-ups by 2020. To promoteStart-ups in the sector, theDepartment shall be implement-ing several measures along withits PSU, the BiotechnologyResearch Assistance Council(BIRAC), like Bio-incubators,Seed Fund and Equity Funding.Scientific Research: There isplenty in the Action Plan toencourage scientific research.The Government will set upseven new Research Parks at sixIITs and the Indian Institute ofScience, Bangalore with an initialinvestment of Rs 100 crore each.The Research Parks shall bemodeled based on the ResearchPark set up at IIT Madras. To pro-mote research and innovationamong young students, theGovernment shall implementseveral measures including anInnovation Core program to tar-get school kids with an outreachto 10 lakh innovations from fivelakh schools.

The start up India campaign isa long awaited dream of a youth-ful nation to realize its potential ofcreativity and innovation. The ini-tiative would boost entrepreneur-ship, creating more jobs andopportunities for the vibrantyoung population of the country. (Author is Senior Journalist andan expert in labour laws andemployment issues e-mail :deepakrazdan50@gmail.com)

START-UP INDIA...Continued from page 1

www.employmentnews.gov.in 46Employment News 30 January - 5 February 2016