Everything You Need To Know About PM Modi’s Startup Action Plan

Finally at 6:30 pm today, Prime Minister Modi unveiled his ‘Startup India, Standup India’ Plan, in front of the 1500 rapt representatives of the startup community.

As the entire Indian ecosystem waited with bated breath, PM Modi announced a slew of measures aimed at simplifying compliance, exempting profits from startups for the first three years, and rolling out an action plan for boosting innovation and entrepreneurship in the country. Through these policies, he has heralded a new era in the history of Indian startups.

Here’s a look at the key highlights:

Compliance Regime based on Self-Certification: This is to reduce the regulatory burden on startups thereby allowing them to focus on their core business and keep compliance cost low. The process of conducting inspections shall be made more meaningful and simple. Startups shall be allowed to self-certify compliance with 9 labour and environment laws. 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.

Startup India Hub: The “Startup India Hub” will be a key stakeholder in this vibrant ecosystem and will;Work in a hub and spoke model and collaborate with Central & State governments, Indian and foreign VCs, angel networks, banks, incubators, legal partners, consultants, universities and R&D institutions; Assist Startups through their lifecycle with specific focus on important aspects like obtaining financing, feasibility testing, business structuring advisory, enhancement of marketing skills, technology commercialization and management evaluation; Organize mentorship programs in collaboration with government organizations, incubation centers, educational institutions and private organizations who aspire to foster innovation.

Rolling-out of Mobile App and Portal: The Government will 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 and shall be made available from April 01, 2016.

Legal Support and Fast-tracking Patent Examination at Lower Costs: This will include Fast-tracking of Startup patent applications, Panel of facilitators will be empanelled by the Controller General of Patents, Designs and Trademarks (CGPDTM) to assist in filing of IP applications, Government to bear facilitation cost and the startups will be provided an 80% rebate in filing of patents vis-a-vis other companies.
Relaxed Norms of Public Procurement for Startups: Government will exempt Startups (in the manufacturing sector) from the criteria of “prior experience/ turnover” without any relaxation in quality standards or technical parameters. The Startups will also have to demonstrate requisite capability to execute the project as per the requirements and should have their own manufacturing facility in India.

Faster Exit for Startups: 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.

Providing Funding Support through a Fund of Funds with a Corpus of INR 10,000 crore: 

• The Fund of Funds shall be managed by a Board with private professionals drawn from industry bodies, academia, and successful startups
• Life Insurance Corporation (LIC) shall be a co-investor in the Fund of Funds
• The Fund of Funds shall contribute to a maximum of 50% of the stated daughter fund size. In order to be able to receive the contribution, the daughter fund should have already raised the balance 50% or more of the stated fund size as the case maybe. The Fund of Funds shall have representation on the governance structure/ board of the venture fund based on the contribution made.
• The Fund shall ensure support to a broad mix of sectors such as manufacturing, agriculture, health, education, etc.

Credit Guarantee Fund for Startups: This is to catalyse entrepreneurship by providing credit to innovators across all sections of society. 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.

Tax Exemption on Capital Gains: 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 assets” 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 to Startups for 3 years: This fiscal exemption shall facilitate growth of business and meet the working capital requirements during the initial years of operations. The exemption shall be available subject to non-distribution of dividend by the Startup.
Tax Exemption on Investments above Fair Market Value: This is to encourage seed-capital investment in Startups.

Organizing Startup Fests for Showcasing Innovation and Providing a Collaboration Platform:

• Hold one fest at the national level annually to enable all the stakeholders of Startup ecosystem to come together on one platform.
• Hold one fest at the international level annually in an international city known for its Startup ecosystem.

Launch of Atal Innovation Mission (AIM) with Self-Employment and Talent Utilization (SETU) Program:

• Entrepreneurship promotion through Self-Employment and Talent Utilization (SETU), wherein innovators would be supported and mentored to become successful entrepreneurs
• Innovation promotion: to provide a platform where innovative ideas are generated

Harnessing Private Sector Expertise for Incubator Setup:

• 35 new incubators in existing institutions. Funding support of 40% (subject to a maximum of INR 10 crore) shall be provided by Central Government for establishment of new incubators for which 40% funding by the respective State Government and 20% funding by the private sector has been committed. The incubator shall be managed and operated by the private sector.
• 35 new private sector incubators. A grant of 50% (subject to a maximum of INR 10 crore) shall be provided by Central Government for incubators established by private sector in existing institutions. The incubator shall be managed and operated by the private sector.

Building Innovation Centres at National Institutes: In order to augment the incubation and R&D efforts in the country, the Government will set up/ scale up 31 centres (to provide facilities for over 1,200 new Startups) of innovation and entrepreneurship at national institutes, including:

• Setting-up 13 Startup centres: Annual funding support of INR 50 lakhs (shared 50:50 by DST and MHRD) shall be provided for three years for encouraging student driven Startups from the host institute.
• Setting-up/ Scaling-up 18 Technology Business Incubators (TBIs) at NITs/IITs/IIMs etc. as per funding model of DST with MHRD providing smooth approvals for TBI to have separate society and built up space.

Setting up of 7 New Research Parks Modeled on the Research Park Setup at IIT Madras: The Government shall set up 7 new Research Parks in institutes indicated below with an initial investment of INR 100 crore each. The Research Parks shall be modeled based on the Research Park setup at IIT Madras.

Promoting Startups in the Biotechnology Sector:

• 5 new Bio-clusters, 50 new Bio-Incubators, 150 technology transfer offices and 20 Bio-Connect offices will be set up in research institutes and universities across India.
• Biotech Equity Fund – BIRAC AcE Fund in partnership with National and Global Equity Funds (Bharat Fund, India Aspiration Fund amongst others) will provide financial assistance to young Biotech Startups

Launching of Innovation Focused Programs for Students: This is to foster a culture of innovation in the field of Science and Technology amongst students.

Annual Incubator Grand Challenge: An “Incubator Grand Challenge” exercise shall be carried out for identification of these incubators. The top select 10 incubators who have the potential to become world class would be given INR 10 crore each as financial assistance which may be used for ramping up the quality of service offerings. The incubators shall also become reference models for other incubators aspiring to offer best-in-class services. Video interviews of these incubators would be showcased on the Startup India portal. The exercise shall entail:

• Open invitation of applications from incubators
• Screening and evaluation based on pre-defined Key Performance Indicators (KPIs) The Incubator Grand Challenge shall be an annual exercise.