For the first time in the history, the Government of India has recognized the startup space, and announced host of measures to boost up the digital entrepreneurship in India. Generally, entrepreneurs are scared of government interference, and this fear keeps them away from setting up new ventures. The mixed economy as practiced by Independent India was synonymous with license raj, and spotting right person to pull strings in order to get things done. Genuine entrepreneurs who lack influence and muscle powers were scared about unwanted government intervention and its consequences. It used to be a difficult task to set up a venture after complying with all known and unknown rules which ranges from local Municipal laws to Central government’s archaic rules and regulations.
In spite of such draconian systems, there occurred a spark in entrepreneurial domain which brought up a bunch of new firms in late 90s and early 2000s. Those companies brought enormous amount of foreign exchange to the country, and opened umpteen job openings. It is worthwhile to salute those entrepreneurs who brought drastic changes to the economic conditions beyond the imagination of economic planners. However, in the early part of this decade, country has witnessed the flow of startups to countries such as Singapore and the US. A few successful startups such as Knowlarity, Flipkart, InMobi, Mobikon, Adnear and Ezetap had decided to operate from soil other than their homeland.
Is there any real reason to move to neighboring country like Singapore? Here is a comparative analysis.
Now, the Prime Minister has realized the ground realities, and announced a series of steps as part of Startup India Action Plan. Let us review if it will slow down the process of departure of India’s best new businesses to neighboring countries. Here, are the highlights of Action Plan of Startups India;
Eligibility for tax exemption under Startups India Action Plan
The following chart shows that whether the venture will be eligible for tax exemption under the Startups India Action Plan;
Now, here is situation analysis with reference to the newly announced plans.
- Funds of Funds: If this is executed, unlike the unspent budget allocations of the past, it would be a big boost to startups. We really need to know the terms and conditions while disbursing the amount.
- 1-day to incorporate company via Mobile App: The most important proposal in the action plan of startups. Generally, it takes around 15-30 days for a company to get incorporated.
- Exemption of startups from labor inspections for the first 3 years: This would spare startups from badgering by labor auditors.
- 90 days exits for defunct Startups: The winding down of defunct startups in 90days is an incommodious process currently. If the stated 90-day exists scheme is indeed implemented, it would be a major step towards making it easier to do business in India.
- Capital gain taxation: The Startup India Action Plan abrogates capital gain tax on new businesses. Since of the meaning of “Startups” is quite narrow, there are remote chances for established start up to fall under this benefit.
- Tax exemption for 3 years: The tax-exemption for 3 years will not help those companies which are usually older than 3 years, usually having revenue higher than the Rs.25 crore. Further, the new startups will not be benefited since there are remote chances for any start up to make huge profit in the first three years.
- Capital Market: Startup India can’t sensibly be relied upon to address this perspective and we can figure out that it would take at least 6-8 years of optimized changes for our market to approach that of a developed economy’s.
- Brand building – An aspect that we cannot anticipate Startup India to address. It will take decades of brand-building, successful enforcement of laws and hard reforms to address this issue.
Overall, it is a good initiative, and it would motivate more entrepreneurs to plunge into the industry. The non-interference of government and absence of Inspector Raj will be a great impetus to starts ups in India. It is equally good to know that government has ultimately recognized startups in India, understood its contribution in employment generation and foreign exchange earning which gives more cheers to startup boys.
However, end of the day, startups need to work hard to make it a big success and government will not work for your startups. Now, it is assured that startups will not be troubled for petty compliances and even if something happens here is document to fall upon and approach industry body.
This article is written by Vinay Bihari, Sr Analyst with DART Consulting.