Startup Policy Rundown: Agri Reforms, Defence Startup Challenge-4 & More

From agri reforms to launching policy around building self-reliant defence systems and Athmanirbhar challenge, a lot has been happening in the Indian startup ecosystem. The businesses are now looking at ways to align their ways into the shifting reforms and rapidly changing regulations in the country.  

On September 20, the Narendra Modi-led government passed the agri reform bills in the Parliament, including the Farmers’ Produce Trade and Commerce (Promotion and Facilitation) Bill, 2020, the Essential Commodities (Amendment) Bill, 2020 and the Farmers (Empowerment and Protection) Agreement on Price Assurance and Farm Service Bill, 2020. Last Sunday, the President Ram Nath Kovind also gave a nod to these three bills.

While the farmers are protesting against these reforms by calling it an anti-farmers and corporate-friendly bills, the government believes that these laws are expected to open up agri market to a whole new level by giving farmers more freedom and help them earn more income, be it in terms of providing market access to farmers outside the traditional APMC and mandis, alongside contract farming and encourages intra-state trade and proposes to reduce the transportation cost and others. 

At the same time, these reforms have opened doors for both new and existing agritech and logistics startups to increase market penetration and boost the agri economy in the country. Many industry experts suggested that the country is expected to witness an agritech revolution in the next five years in terms of startups coming up with newer models of agri solutions to bridge the gap in the value chain, thereby bringing in transparency, efficiency, quality and reliability into the agriculture ecosystem. 

Today, India has more than 500 agritech startups, growing at a rate of 25% year-on-year (YoY). In 2019, the majority of these startups have raised a total of $250 Mn in funding, which is 3X times the total amount invested in the sector in 2018. 

With these reforms coming in the picture, the sector is set to attract more investments in the coming years, with the rise in agri focused funds. For instance, some of the early investors in the sector include Aavishkaar, Accel, Ankur Capital, Beenext and Omnivore, and some of the recent funds such as Blume Nexus, Sequoia, Tiger Global, 3one4 Capital are also investing in this sector. 

In another update, the department of promotion of industry and internal trade (DPIIT) released the much-awaited state startup ranking on the basis of the startup policy framework which was announced last February. Accordingly, Gujarat and Andaman & Nicobar Islands have topped the charts, as the best performers, while Karnataka and Kerala were named as the top performers. 

Besides these, Bihar, Maharashtra, Odisha, Rajasthan, Chandigarh have emerged as the leaders in the state’s ranking list, followed by Haryana, Jharkhand, Punjab, Telangana, Uttrakhand winning the tap of aspiring leaders. At the same time, the industry body also noted Andra Pradesh, Assam, Tamil Nadu and Madhya Pradesh among others as the emerging startup ecosystem in the country. 

Startup Policies In September 2020 

Here are some of the biggest startup-related policy updates from across the country.

Govt Launches India Startup Challenge-4, Releases PMA Guidelines For iDEX

Earlier this week, at the launch event of Defence India Startup Challenge-4 (DISC4), the defence minister Rajnath Singh released the project management approach (PMA) guidelines for iDEX (Innovations for Defence Excellence). The defence minister further stated that this programme will promote innovation and development in the defence sector, and includes about 11 challenges of the armed forces that would require startups to address.   

This decision to launch the startup challenge comes as a measure to make India’s defence sector strong and self-reliant, where the government has also launched a policy called ‘Defence Acquisition Procedure 2020,’ which looks to include private players to venture into developing ‘made in India’ defence technologies. Previously, over 700 startups have been part of DISC initiatives, out of which 58 individuals and teams were selected for innovation grants under ‘Support for Prototype and Research Kickstart (SPARK). 

Govt Launches Atmanirbhar Bharat ARISE To Fuel Indian Startups 

Under the flagship initiative of the Indian government’s think tank Niti Aayog, the Atal Innovation Mission (AIM) last month launched the Aatmanirbhar Bharat ARISE – Atal New India Challenges (ANIC) to boost applied research and innovation in MSMEs (micro, small and medium enterprise) and startups by challenging them to come up with innovative solutions and products to tackle problems across sectors. 

Taking this forward, the government has collaborated with Indian Space Research Organisation (ISRO), alongside the Ministry of Defence, Ministry of Food Processing Industries, Ministry of Health and Family Welfare and Ministry of Housing and Urban Affairs to facilitate the process of putting out problem statements for the companies. The selected startups would be provided funding support of up to INR 50 Lakhs for 9-12 months for startups to come up with a minimum usable prototype. 

Tamil Nadu Govt Unveils ‘Safe & Ethical AI Policy’

The Tamil Nadu government recently launched India’s first ‘Safe & Ethical Artificial Intelligence Policy 2020,’ as a measure to create an ecosystem for safe and ethical tech solutions for e-governance. Accordingly, the government will be leveraging the state family database (SFDBI) and blockchain framework, and one of the ways proposed to take this forward is the ACTS-Blockchain implementation (ACTS stands for AI Certification, Transparency and Scorecard Blockchain).  

Through this policy, the government is said to focus purely on a strategic plan for implementing blockchain in the state of Tamil Nadu among which are proposed a blockchain backbone and a regulatory sandbox for blockchain apps.  

Govt Extends Validity Of FAME II Certification Till December 2020 

The Indian government recently announced that it has extended the validity of FAME II (Faster Adoption and Manufacturing of Hybrid and Electric Vehicles) certificate for all approved EV models, including two-wheelers, three-wheelers and four-wheelers till December 31, 2020. As per FAME II policy, which was announced last year, the government has allocated INR 10K Cr to increase the adoption of electric vehicles in the country. Under the second phase of FAME, the government will be offering an incentive of INR 1.5 Lakh each to 25K electric four-wheelers, along with incentives to electric two-wheelers, three-wheelers, and electric busses. 

Income Tax Dept On Tax Levy Of Ecommerce Payments 

On September 29, the income tax department stated that there will be no tax deduction from payments if the ecommerce platforms have already deducted it at the beginning. The Central Board of Direct Taxes said that the new rules will be effective from October 1 onwards. This development comes after ecommerce players such as Amazon, Flipkart, Bookmyshow among others sought clarity on how the new tax imposed under the Union budget would be levied.  

Govt To Offer $4.6 Bn In Incentives For EV Battery Makers

As a major push to promote the adoption of electric vehicles and localise the manufacturing of EVs in the country, the Indian government’s think tank Niti Aayog recently proposed to offer $4.6 Bn in incentives to companies setting up advanced battery manufacturing facilities in the country, starting with cash and infrastructure incentives of INR 900 Cr in the next financial year. 

This proposal is said to be reviewed by the Union cabinet in the coming months, and could benefit batter makers such as South Korea’s LG Chem and japan’s Panasonic Corp as well as automakers like Tata Motors and Mahindra & Mahindra who have already started building EVs in India. Overall, the proposal estimates are said to cost firms close to $6 Bn for the next five years to set up battery manufacturing facilities with the support of government’s subsidies. 

SEBI Mandates Investor Approvals For All Deals By Angel Funds 

The securities and exchange board of India (SEBI) recently sent a letter to one of the early-stage venture capital firm LetsVentures, stating that a fund manager of an angel fund has to take consent of every investor in the fund syndication prior to making an investment. In the letter, SEBI said that the manager of the angel fund should obtain an undertaking from every angel investor proposing to make an investment in a venture capital undertaking by confirming approval before making any investment. 

While the angel investors deal goes through the approval process, this could slow the deals turnaround time and delays. However, in an ET Now report, serial entrepreneur Krishnan Ganesh said that the move is cautionary and won’t lead to any slowdown. Further, he said that going back to your angels and getting a specific yes for every decision is a welcome move. “Clarity, if it’s not good, is always better than no clarity,” he added. 

Govt Plans To Float $2 Bn Alternative Investment Fund (AIF) For Startups 

The Indian government is currently in talks with the global pension fund and Insurance Regulatory Development Authority of India (IRDAI) to float $2 Bn alternative investment fund (AIF) to fuel the growth of startups, and reduce the dependence on foreign private equity funds. In addition to this, the government is also looking to bring in several changes to the existing laws, including insurance sector regulations. 

Personal Data Protection Bill Report Receives Extension From Lok Sabha

The Joint Parliamentary Committee (JPC) examining the Personal Data Protection (PDP) Bill, last week extended the report submission date to the second week of the winter session of the parliament in 2021. The JPC, which was formed in Lok Sabha last year, consists of 20 members from Lok Sabha and 10 members from Rajya Sabha. Accordingly, the PDP Bill looks to regulate the use of individual’s data by the government and private companies. 

Govt Allocates INR 640 Cr To Power 45K Villages With Optic Fibre Connection 

In a bid to digitise rural villages in Bihar, Prime Minister Narendra Modi recently inaugurated optical fibre internet services. Carrying forward this initiative, the government has allocated INR 640 Cr, and plans to provide optic fibre internet services to 45K villages of Bihar by end of March 2021. 

Furthermore, the Prime Minister’s Office (PMO) said that the fibre internet services programme is a ‘prestigious project,’ covering all the villages in the country. The project is said to be carried out by the Department of Telecom, Ministry of Electronics & Information Technology (MeitY) and Common Service Centres (CSC). 

Bill To List Startups Overseas Gets Lok Sabha’s Nod

On September 19, the Lok Sabha passed the Companies (Amendment) Bill, 2020. Accordingly, the bill is said to allow public companies to list certain class of securities in foreign jurisdictions. Previously, the law didn’t allow companies to list Indian companies abroad, before getting listed in Indian stock exchanges first. Also, the new bill looks to decriminalise certain offences listed in the Companies Act, 2013, for defaults which can be determined objectively as a measure to improve the ease of doing business (EoDB) for small enterprises and startups. 

TRAI Rules Out Plans To Regulate OTT Platforms 

The Telecom Regulatory Authority of India (TRAI) recently announced that it plans to rule out the need to regulate over-the-top (OTT) platforms. The industry body believes that the time is not right to come up with a comprehensive regulatory framework. Also, it has dismissed the need for any kind of regulatory intervention relating to the privacy and security of OTT services for time being. TRAI might look into the matter once there is clarity on international jurisdictions. 

IRDAI Pushes Digital Adoption In Insurance 

The Insurance Regulatory and Development Authority of India (IRDAI) last month has allowed health and general insurers to obtain the consent of prospective policyholders through a duly validated one-time password (OTP), instead of paper signed documentation by March 31, 2021. This move is said to top push private and public general and health insurance companies to digitise its operations in the coming times. 

Govt Bans 118 More Chinese Apps 

In the third wave of digital strike, the government of India has banned 118 Chinese apps, including PUBG, Baidu, Ride Out Heroes NetEase Games, Soul Hunters, Rules of Survival among others. According to the government, these apps were banned on the grounds of Section 69A of the IT Act, which states that these apps were engaged in activities which are prejudicial to sovereignty and integrity of India, defence, the security of the state and public order. 

In the past, the government had banned close to 59 Chinese apps, including TikTok, UC Browser, Clash Of Kings, Helo, Likee, CamScanner among others for the same reason of a plausible threat to sovereignty and security of the country.  

Govt Looks To Ban Mobile Applications From Collecting User Information Beyond Requirement 

The Indian government recently announced that it is planning to prohibit mobile applications from collecting user information beyond their area of functioning. This development comes after rising in concern around data handling and user privacy issues arising from tech platforms like Facebook, Whatsapp and other Chinese apps. 

According to several media reports, it is said that the government is already working on drafting a policy that would stop apps from collecting information that is not relevant for their operations. This development comes in the background of an increasing number of cases of cyber-attacks, phishing and data thefts of some of the well-known and larger internet apps. 

MCA Alters Deposit Rules For Startups 

As a measure to offer more flexibility for startups to raise funds, the ministry of corporate affairs (MCA) has changed the rules related to the acceptance of deposits by companies. The new rule allows startups to raise funds through corporate bonds and other convertible instruments for 10 years, as compared to five years. 

In addition to this, the department has altered the time period of repayments from five to ten years. Also, the amount of up to INR 25 lakh received by a startup through a convertible note in a single tranche will not be considered ‘deposits’ under company law compliance. Prior to this, MCA had also changed the definition of startup to be in-line with the definition used by DPIIT. 

Govt Urges Startups To Submit Report On Issues Related To ESOPs 

On September 3, the commerce and industry minister Piyush Goyal has requested the startup to draw up a holistic report on issues related to employee stock option plans (ESOPs) so that it can be sent to the ministry of finance for consultations. This development comes after the government had recently allowed startups to issue ESOPs to its employees for up to ten years from their registration year. Prior to this, the limit to issue these shares was five years. 

Furthermore, the government is looking to engage with startups on the issues in the coming month. Commenting on the same, Goyal said that some of the steps were announced earlier related to easing of tax payments for startups but subsequently, some issues were brought to the department’s notice “Let’s try again when the budget comes next year. Come up with a holistic paper, and we will insist on it and see how we can do it in the budget to sort out these issues to make it an easier regime, especially the difference between listed and unlisted,” he added.