The Startup India, Standup India event held last week created a perfect media storm. DIPP Secretary Amitabh Kant, who is credited with spearheading the Make In India campaign, hosted the equivalent of a TED Talks event, featuring a live act of A-listers, politicians and bureaucrats to billionaire tech oligarchs and tech entrepreneurs, all in one place. They explained why India is the biggest and what it takes to be a successful startup entrepreneur, against the backdrop of agency-tested slogans (We Unobstruct, Ecosystem Minus The Trappings Of The System, Creating Creators, etc. ), followed by a headliner that saw plenty of announcements that everyone has already heard of.
(Also read: Startup India Action Plan: 12 Big Announcements from Prime Minister Modi)
The venue was packed, and even if you weren’t a part of it, the announcements made were meaty enough to grab any entrepreneur’s attention. The Rs. A 10,000 crore fund-of-funds, announced in the 2014 Union Budget, has materialized into an action plan that follows a funding winter in the startup ecosystem. The fourth quarter of 2015 saw a halving of venture capital investments according to CBInsights. Government Rs. The 10,000 crore innovation fund will be the most contested and scrutinized slice of the funding pie.
(Read also : Startup India: what 13 startup founders expect from the government)
At first glance, many of the details of the action plan offer a bottom-up approach to entrepreneurship, making it easier to start and dissolve a business. But there are a lot of caveats along the way, hurdles a startup has to jump through to reap those benefits. It requires certification by an inter-ministerial council, set up by the DIPP, and the DIPP “may publish a ‘negative’ list of funds that are not eligible for this initiative”. Here’s what startups need:
Obtaining certification from the Interministerial Council set up by the DIPP to validate the innovative nature of the company and:
a. be supported by a recommendation (regarding the innovative nature of the business), in a format specified by the DIPP, from an incubator established at a post-graduate college in India; or
b. be supported by an incubator financed (in relation to the project) by the Government of India within the framework of any specific program for the promotion of innovation; or
vs. be supported by a recommendation (regarding the innovative nature of the business), in a format specified by the DIPP, from a GoI-recognized incubator; or
D. be funded by an incubator fund/angel fund/private equity fund/accelerator/angel network duly registered with SEBI* that endorses the innovative nature of the business; or
e. be funded by the Government of India under any specific program to promote innovation; or
F. have a patent granted by the Indian Patent and Trademark Office in fields related to the nature of the activity being promoted.
This seems to go against the grain of unfettered startups, and instead creates another layer of registration and paperwork for a startup. Sumanth Raghavendra, founder of Bengaluru-based Pitchdeck, says artificial incentives such as tax breaks lead to distortions and abuse. Also, startups barely turn a profit in the first few years of operation, and some have wondered if this is just another loophole that older companies use to dodge paying taxes.
Capital Mind’s Deepak Shenoy, who has written an e-book on the start-up tax and how it affects India’s angel funding environment, points out that the proposed tax benefits are illusory.
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