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Startup India is a flagship initiative of the Government of India, intended to build a strong ecosystem for nurturing innovation and Startups in the country that will drive sustainable economic growth and generate large-scale employment opportunities. A start-up technically is any enterprise that is working on the growth, commercialization, and creation of brand-new products, services, or mechanisms that are driven by intellectual property or new tech.
The Startup India Action Plan was unveiled by Prime Minister Mr. Narendra Modi on 16th January 2016 to highlight several initiatives and schemes proposed by the Government of India to build a strong eco-system to nurture innovation and empower Startups across India.
Presently it is not at all surprising to see that India is growing up as a hub of the biggest startups. One 97 Communications (PayTM), Ola cabs, Dream 11, Swiggy, and Razorpay are a few of the richly valued Indian startups across the world. The country is now getting more startup unicorns, including companies from the sectors like Healthtech, social commerce, finance, and more. Unicorn companies in the business are those startups that value more than $ 1 billion.
The 19-point Action Plan envisages several incubation centers, easier patent filing, tax exemptions, ease of setting up of business, an INR 10,000 crore corpus fund, and a faster exit mechanism, among others.
The Government of India has initiated, the National Startup Awards, to acknowledge and appreciate fledgling entrepreneurs who are bringing about significant changes in their sectors. The awards seek to identify and honour innovative entrepreneurs who are making a mark in the early stages of their ventures.
In addition to awards, other government support can also play a crucial role in the success of early-stage startups. This support comes in various forms, such as funding, grants, incentives, and mentorship programs to help the startups navigate the challenges of building and growing a business.
What are Start-Ups?
According to the Ministry of Commerce and Industry Department of Promotion of Industry and Internal Trade, a Start-Up may be defined as:
- If it is incorporated as either a Private Limited Company, Registered Partnership Firm, or Limited Liability Partnership. A sole proprietorship or a public limited company is not eligible as a startup.
- If it is up to 10 years from the date of its incorporation/ registration.
- If its turnover for any of the financial years has not exceeded INR 100 crore.
- If it is working towards innovation, development, or improvement of products or processes, or services, or if it is a scalable business model with a high potential of employment generation or wealth creation.
- Should not have been formed by splitting up or reconstruction of a business already in existence.
Growth of Startups in India
“The government has taken several measures for start-ups and they have borne results. India is now the third-largest ecosystem for start-ups globally and ranks second in innovation and quality among middle-income countries,” Ms. Sitharaman said as she presented the Union Budget 2023-24 in the Lok Sabha.
Startup India is a Government of India flagship initiative to build Startups and nurture innovation. Through this initiative, the Government plans to empower Startup ventures to boost entrepreneurship, economic growth, and employment across India.
Other Support Provided by the Government
- Funding from angel investors and venture capital firms becomes available to startups only after the proof of concept has been provided. Similarly, banks provide loans only to asset-backed applicants. It is essential to provide seed funding to startups with innovative ideas to conduct proof of concept trials.
- Incubators play a vital role in the growth of startups. They provide the necessary resources such as infrastructure, mentorship, and financial support to nurture and support the innovation of startups. India has 400+ Incubators with most of them at the nascent stage. Startup India aims to enhance the capacities of the existing incubators and also provide support in setting up new incubators.
- Up to Rs. 20 Lakhs as a grant for validation of Proof of Concept, prototype development, or product trials. The grant shall be disbursed in milestone-based installments. These milestones can be related to the development of prototypes, product testing, building a product ready for market launch, etc.
- Ministry of Corporate Affairs has notified Startups as ‘fast track firms’ enabling them to wind up operations within 90 days vis-a-vis 180 days for other companies. 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 an application for winding up on a fast-track basis.
- The recognised startups that are granted an Inter-Ministerial Board Certificate are exempted from Income Tax for a period of 3 consecutive years out of 10 years since incorporation
- Startups incorporated on or after 1st April 2016 but before 1st April 2023 can apply for income tax exemption under Section 80IAC of the Income Tax Act
- The FM proposed the extension of the date of incorporation for income tax benefits to startups from 31.03.2023 to 31.03.2024
- A guaranteed coverage of up to Rs.10cr is available to Startups.
Bank Finance for Start-up Scheme
Funding support by the banks is available to eligible Start Ups recognized by the Department of Promotion of Industry and Internal Trade (DPIIT). Eligibility criteria for bank finance are as under:
- Start-Ups are defined, as per the policy of the Bank.
- The unit must be eligible and certified as a start-up by the concerned government authority as per Start Up India Scheme.
- The constitution of the unit should be a private limited company (under the companies act 2013), Registered Partnership firm (under the Indian Partnership Act 1932), and limited liability Partnership (Under the partnership act 2008).
- The startup must have stable revenue as assessed from audited monthly statements over 12 months.
- The startup must not be in default to any lending institution/Bank.
Term Loan/Working Capital/Non-fund-based limit Composite loan may be considered at the time of initial sanction. Assessment is to be made as per the credit policy of the Bank. The facility up to Rs.10 Cr may be covered under Credit Guarantee Scheme for Startup (CGSS).
Credit Guarantee Scheme for Startups (CGSS)
The Department for Promotion of Industry and Internal Trade (DPIIT), Ministry of Commerce and Industry has notified the establishment of the Credit Guarantee Scheme for Startups (CGSS) for providing credit guarantees to loans extended by Scheduled Commercial Banks, NonBanking Financial Companies and Securities and Exchange Board of India (SEBI) registered Alternative Investment Funds (AIFs). Getting a startup off the ground is not an easy task for any entrepreneur. Lack of adequate funding when required, and the high-risk perception of the banks towards this segment, have most often been the two major reasons why startups have found it so difficult to even set up shop.
The Government of India, to give a much-needed boost to the startup industry, has recently announced a special scheme, known as the Credit Guarantee Scheme for Startups or Credit Guarantee Fund Scheme or CGSS. An offshoot of the Startup India plan launched by the Prime Minister, this scheme, with a contribution of Rs.2000 crore, will enable startups to obtain collateral-free loans for starting businesses.
CGSS is aimed at providing credit guarantees up to a specified limit against loans extended by Member Institutions (MIs) to finance eligible borrowers viz. startups as defined in the gazette notification issued by DPIIT and amended from time to time. The credit guarantee cover under the scheme would be transaction-based and umbrella based. The exposure to individual cases would be capped at INR 10 crore per case or the actual outstanding credit amount, whichever is less. In respect of transaction-based guarantee cover, the guarantee cover is obtained by the MIs on a single eligible borrower basis. Transaction-based guarantees will promote lending by Banks/ NBFCs to eligible startups. The extent of transaction-based cover will be 80% of the amount in default if the original loan sanction amount is up to INR 3 crore, 75% of the amount in default if the original loan sanction amount is above INR 3 crore, and up to INR 5 crore, and 65% of the amount in default if the original loan sanction amount is above INR 5 crore (up to INR 10 crore per borrower).
Challenges and Opportunities in Start-ups
There are around 99,380 startups that have been registered in India as of July 2023. Entrepreneurship and startups are only a recent phenomenon in the country. It is only in the last decade and a half that people in the country have moved from being job seekers to job creators. Doing a startup is tough and every country sees more failures than success.
The Challenges before Start-ups are:
- Financial resources: Availability of finance is critical for startups and is always a problem to get sufficient amounts. Several finance options ranging from family members, friends, loans, grants, angel funding, venture capitalists, crowdfunding etc are available. The requirement starts increasing as the business progresses. Scaling of business requires a timely infusion of capital.
- Revenue generation: Several startups fail due to poor revenue generation as the business grows. As the operations increase, expenses grow with reduced revenues forcing startups to concentrate on the funding aspect, thus, diluting the focus on the fundamentals of business. Hence, revenue generation is critical.
- Team members: Startups normally start with a team consisting of trusted members with complementary skill sets. Usually, each member is specialized in a specific area of operations. Assembling a good team is the first major requirement, failure to have one sometimes could break the startup
- Supporting infrastructure: Several support mechanisms play a significant role in the lifecycle of startups which include incubators, science and technology parks, business development centers, etc. Lack of access to such support mechanisms increases the risk of failure.
- Creating awareness in markets: Startups fail due to a lack of attention to limitations in the markets. The environment for a startup is usually more difficult than for an established firm due to the uniqueness of the product. The situation is more difficult for a new product as the startup must build everything from scratch.
- Lack of mentorship: Lack of proper guidance and mentorship is one of the biggest problems that exist in the Indian startup ecosystem. Most startups have brilliant ideas and/or products but have little or no industry, business, and market experience to get the products to the market.
- India’s large population: The population of India is a huge asset for the country. It is expected that the working-age population would surpass the non-working population. This unique demographic advantage will offer a great opportunity for any startup.
- Huge Investments in Startups: Huge investment in Indian startups from foreign and Indian investors is taking place.
- Connectivity: Indian telecom industry has nearly 100 crore subscribers, and mobile connectivity has made inroads in the rural and urban population. The government of India’s digital push is going to improve connectivity and data to the next level. The race to the cheapest data has started and disruption is certain. The cheap data has helped everyone to get their hands on it, start-ups will have an easier time tapping into markets, territories, and even traditional businesses.
- Change of Mind Set of the Working Class: Traditional career paths will be giving way to the Indian startup space. Challenging assignments and good compensation packages would attract talented people to startups. Also, it is seen that several high-profile executives are quitting their jobs to start or work for startups
- Innovation Society: India has the largest youth population, which is the largest driver for innovation, workforce, talent, and future leaders. India has its challenges in education, health, infrastructure, and the rising gap between India and Bharat. This presents a big opportunity for start-ups to solve a variety of problems. The large diversity in India’s population makes a strong case for a rich services and products economy. Start-ups should look at banks; our banking system has reaped the maximum benefit of our population size.
The details of funds allocated under Fund for Funds for Start-ups where The Government has established FFS with a corpus of Rs. 10,000 crores, to meet the funding needs of startups are as follows:
|The details of the amount allocated and utilized under the Fund of Funds for Startups, State/UT-wise as of 30th November 2022 are as under:|
|Name of State/ UT||Total Amount Allocated in Rs. Crore (Committed to the Alternative Investment Funds)||Total Amount Utilised in Rs. Crore (Drawdowns made by the Alternative Investment Funds and Disbursed by SIDBI)|
Our Bank has been a pioneer in financing Startups and recently unveiled its ambitious plan to set up three dedicated centers for startups in key cities, namely Mumbai, Bengaluru, and Delhi. The initiative aligns with the government’s vision of promoting innovation and entrepreneurship and falls under the Department for Promotion of Industry and Internal Trade’s (DPIIT) umbrella.
The current economic scenario in India is in expansion mode. The Indian government is increasingly showing greater enthusiasm to increase the GDP rate of growth from grass root levels with the introduction of liberal policies and initiatives for entrepreneurs like ‘Make in India’, ‘Startup India’, MUDRA, etc. ‘Make in India’ is a great opportunity for Indian start-ups. With the government going full hog on developing entrepreneurs, it could arrest the brain drain and provide an environment to improve the availability of local talent for hiring by startup firms. The startup arena has a lot of challenges ranging from finance to human resources and from launch to sustaining growth with tenacity. Being a country with a large population, the plethora of opportunities available are many for startups offering products and services ranging from food, retail, and hygiene to solar and IT applications for day-to-day problems which could be delivered at affordable prices.