Facilitating the startup ecosystem in India through government initiatives
Over the course of the last few years, the startup ecosystem in India has witnessed a remarkable transformation. As the growth prospects and opportunities for employment generation notice a steady ascent, the number of entities formally recognized as startups has continued on a similar upward trajectory to observe a consistent rise. A monumental contribution to the evolution and progress of this ecosystem can be attributed to the government’s extensive policies and initiatives to ensure steady, fair, and expansive growth.
As on 30th June 2022, DPIIT-recognized startups continue to generate employment for a staggering 7,67,754 workers. On account of such compelling statistics, it is hardly astonishing to observe that India has been recognized as the third largest startup ecosystem in the world by the Economic Survey of 2021-22.
The government has been at the forefront of this transformation through strategic maneuvers such as its flagship Startup India initiative which has played an instrumental role in the rapid growth of the startup space in India. By and large, this was made possible through 14 major programs launched across the country under the umbrella of this initiative. In the preliminary stage, the government recognized the need for establishing a robust ecosystem for nurturing innovation through schemes and incentives.
Accordingly, an Action Plan was unveiled on 16th January 2016, drawing on 19 focus areas relating to three principal pillars: Simplification and Handholding, Funding Support and Incentives, and Industry-Academia Partnership and Incubation. By concentrating on these key domains, the aim is to build a strong foundation for encouraging and strengthening the ecosystem for upcoming generations.
Part I: Simplification and Handholding
In order to ensure a straightforward and uncomplicated growth environment for startups, the government placed considerable significance on streamlining key functions relating to business operations. Since 2016, 52 regulatory reforms have been introduced with a view to augment Ease of Doing Business, Ease of raising capital, etc. Startups have been granted the provision to self-certify compliance under 9 labour and 3 environment laws for a period of 3 to 5 years from the date of incorporation. In addition, they can qualify for patent application examination and disposal at an accelerated pace. Government-launched Startups Intellectual Property Protection (SIPP) initiative provides an 80 per cent and 50 per cent concession in filing patents and filing trademarks vis-a-vis other companies, respectively. All charges of the facilitators for multiple patents, trademarks, or designs are borne by the government, and startups only absorb the cost of the unsettled statutory fees. Startups can now avail faster exit empowering them to wind up operations within 90 days. Significant measures have also been undertaken to reduce the compliance burden for these entities.
Part II: Funding Support and Incentives
Capital is essential for entrepreneurs at the initial stages and for the scaling and growth of an enterprise. Appreciating the necessity for healthy and transparent availability of funds to these entities, the government set in motion two vital programs relating to this concern. The Fund of Funds for Startups (FFS) Scheme, instituted with a corpus of Rs. 10,000 crores, was introduced to resolve the funding needs of startups. It is monitored by DPIIT and operated by the Small Industries Development Bank of India (SIDBI). The Startup India Seed Fund Scheme (SISFS) is another program with a similar agenda focusing entirely on enabling easy access to capital at the early stages. The plan is aimed at providing monetary assistance across a range of functions such as proof of concept, development of prototypes, product trials, etc. Under this framework, Rs. 945 crores have been allowed for a period of 4 years starting 2021-22.
In addition to ensuring the availability of funds, the government has also worked on providing incentives related to the exemption of income tax for startups. For example, DPIIT-recognized startups can avail of relief from the provisions of section 56(2) (viib) of the Income Tax Act and can enjoy income tax exemption for a period of 3 years on the basis of fulfilling eligibility requirements.
Part III: Industry-Academia Partnership and Incubation
Under the final leg of this initiative, prime focus has been placed on nurturing the startup ecosystem by providing ample exposure and opportunities to grow through partnership programs and related strategies. Various engagement models have been deployed in an effort to connect the Indian startup space with global startup ecosystems. This has been made possible through partnerships with foreign governments, partaking in multinational forums, organizing cosmopolitan events, etc. Cross-country collaboration has also been made more efficient using similar systems. On 19th June 2017, the government set in motion the Startup India Online Hub to organize a platform that allows for enhanced visibility and provides startups with convenient access to key resources. It acts as a channel and facilitator of communication between multiple stakeholders such as Investors, Mentors, Incubators, Accelerators, Corporates, and Government Bodies, among others. Similarly, the Startup India Showcase was introduced as an online discovery platform for some of the most promising startups of the nation across cutting-edge sectors such as Fintech, EntrepriseTech, Social Impact, HealthTech, etc. Various similar programs ensure that startups capture the exposure and connections required for them to sustain themselves in competitive domestic and international markets.
In view of the above programs instituted under the Startup India initiative, India’s disposition as one of the leading startup facilitator countries of the world seems intuitive at present and consolidated for the future. A record 44 Indian startups underwent a transformation to be recognized as unicorns in the last year. As of 19th July 2022, India houses 105 unicorns estimated to be valued at $ 338.50 Bn. As recent numbers and statistics bespeak the success of government initiatives surrounding this space, the Indian start-up ecosystem assures to be a promising domain in the upcoming years.
This has been co-authored by Muskan Hashim and Devika Chawla.