“Acche Din” Might Finally Arrive For Indian Startups As Government Works On A New Startup Policy

We all are aware of our PM Narendra Modi praising the startup ecosystem in the country. But this is not just a theory, and it is turning into practicality as the Government of India, especially the commerce ministry’s Department of Industrial Policy and Promotion (DIPP), is looking to provide a boost to the startups in the country.

The DIPP, along with National Institution for Transforming India Aayog (Niti Aayog- a Government’s policy think-tank as a planning commission) is working on a new startup policy, and has been engaging trade & lobbying body, Nasscom and other leaders from the Indian startup ecosystem like Softbank’s President, Nikesh Arora, Snapdeal founder, Kunal bahl, Oyo Rooms founder Ritesh Agarwal and former Infosys CFO & HR head, Mohandas Pai for recommendations. The department is working on a detailed policy that is likely to be unveiled in December.

“We are getting a feel of realities at the ground level. These interactions have helped in the issues that have to be addressed to build an ecosystem for startups. These relate to different departments, including corporate affairs, banking, Reserve Bank of India, economic affairs,” a senior DIPP official told ET.

As a part of this, Nasscom has already submitted a 10-point recommendation to the department. This includes:

1. Define: Put a definition for government on what a tech startup is, what it includes and what not. There should be clarity between startup and any LLP that is incorporated.
2. Taxation: Build an integrated approach to tax that helps mitigate tax liability from TDS, Service Tax, VAT, MAT, Income Tax , ESOP, Angel Tax , barriers to ESOPs under the corporate tax. There is lack of clarity around taxation in startup.
3. Compliance: Simpler and easier to file, monitor and verify – reliance on self- declarations instead of audits and inspections, Softex approval and  waiver for low amounts.
4. Funding: Enable access to risk capital and debt funding, support increase in share of domestic funds in alternative investment funds (AIF)and FDIs.
5. Angel Investment: Align India’s Angel Framework with Global Practices in terms of tax credits, treatment of capital gains and more.
6. Online payments: A lot of online payment startups face the challenge with two factor authentication system. Also, there is lack of properly defined SLAs for refund of transactions declined. It needs more transparency.
7. Incubation: There should be an Incubator assistance program that supports physical and virtual incubation, government should be catalyst here, apart from the private ones.
8. Enablement: Enabling market access and training grants.
9. Strategic Sectors: Providing support in terms of IPR acquisition in sectors of electronics and defense.
10. Branding: India should be branded as a Startup Nation. This will not only break the world’s view about it as an outsourcing destination, but an innovation destination, bringing more funds from keen investors.

India has become a startup hotbed and third fastest growing base of startups worldwide with the number of startups expected to cross 4,200 by the end of 2015. According to Nasscom report, every day 3-4 startups are born and in 2015 alone over $5 Bn was invested in startups, compared to $3 Bn in 2014. Also, the number of active investors grown from 220 in 2014 to 490 in 2015, recording a growth of roughly 123% from a year ago.

PM Modi announced about the startup mission and mandated the department to run the mission forward in August, this year. Following this, department started working on a policy and is also looking for a consulting agency with prior experience of consulting in global markets to share its report and help in drafting the policy. Consulting majors firms like KPMG, Ernst  & Young, ICRA Management Consulting, Wipro, PWC, IL&FS Clusters, Deloitte, Grant Thornton, Mckinsey & Company and A.T.Kearney are said to have shown interest in the same in the preliminary rounds of discussion.

Apart from the central government, state governments are also trying to build upon this phenomenon of budding startups. Earlier this month, Government of Karnataka launched a startup venture fund. Soon after this, Government of Rajasthan introduced its startup policy. Under this, state government will  allocate $8.4 Mn to bring investments over $76 Mn to set up 500 startups in the next 5 years.

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