What does India’s $1.5bn Action Plan really mean for startups?

Startups in India can expect a significant boost following the announcement by the country’s prime minister Narendra Modi of new support for the sector. But will these really help lift startups?

The measures which were announced by Modi at the launch of Start-Up India in Delhi on Saturday. They form part of a government action plan to assist the country’s growing number of tech startups, described as firms of less than five years old and with annual sales of up to US$3.6-million.

String of measures

They include a three-year tax exemption for startups, a three-year exemption from a string of labour and environment inspections, subsidised patent applications, relaxed state procurement norms and a faster process that will allow a startup to shut shop in 90 days,

Added to this a US$1.5-billion government venture capital fund in the form of a fund-of-funds will invest in registered VC funds. It will add to a fund-of-funds launched last year by the state (see this post). A US$75-million credit guarantee fund will also be available.

Read more: 6 startups scaling up in India

The government also aims to hold startup festivals to among other things connect investors and startups, establish more incubators while incentivising the private sector to do the same by covering part of the set-up costs. It also wants to build innovation centres at training institutes of technology and launch an innovation fund for students,

Startups will also be able to register their businesses via an app and interact with the authorities via an online portal. The app will be launched 1 April.

​In addition the government is also considering exemptions of capital gains tax levied on the sale of capital assets, with an announcement expected to be made on this in next month’s budget speech, according to Finance Minister Arun Jaitley.

Earlier this month the government approved a scheme (Stand Up India) which obliges every bank branch across India to fund at least one woman and one person described as a scheduled caste member, with loans of up to 10 million rupees.

State interference?

The reaction from Indian entrepreneurs to Modi’s new measures has mostly been positive.

Some Indian entrepreneurs the fast exit under the bankruptcy bill may be the biggest help, as presently it takes years to settle debts of a failed company.

However not everyone is convinced. Some, like Entrepreneur Mahesh Peri, say the plan will see more government interference in the sector instead of less, as promised by Modi.

Read more: India poised to become world’s next startup nation

He says for example that instead of running startups festivals and incubators itself the government should provide a tax incentive to spur on organisations and companies to run these, while VC funding should be left to the private sector to carry out.

In addition Peri and others point out that the three-year tax exemption is likely to be meaningless as most startups don’t turn a profit in the first three years.

Another problem is that even startup with no revenue has to file audited accounts every year and submit returns. In addition the plan does not address the so-called Angel Tax.

Real concerns

On top of this Indian entrepreneurs are still constrained by a shortage of skilled workers (according to a survey this month), poor infrastructure, red tape and low internet adoption.

However progress appears to being made in the last of the three, with India’s Telecoms minister this week saying the number of web users is expected to climb from 400 million to 500 million in the next eight months, most of them will be smartphone users.

Now what is needed more than ever is the same approach to cutting India’s notorious bureaucracy and a more concerted change in how small business owners are viewed by officialdom.

Read more: 11 big startup acquisitions in India and what they mean for entrepreneurs

Says K Yatish Rajawat: “Currently he is looked upon with suspicion because he is small. He is not looked at as a guy who is trying hard to realise his wonderful dream. There is little admiration for his efforts. He could have been job chaser, pen pusher, but he will be the job creator given a chance. Increasing his chances to survive is what is needed.”

As part of the Startup India programme, the Prime Minister’s Office will also select and screen 10 one-minute long videos of select startups to showcase the impact these businesses are making in the country.

The idea is to showcase these videos during national and international events as part of the Startup India and Make in India initiatives. Maybe civil servants should also view them.

But as some point out, perhaps the greatest success is that the government has made it cool to be in a startup. This is something more government leaders should take heed of.

This article originally appeared on Small Business Insight, a Burn Media publishing partner, with the headline ‘South Africa hopes to seed new start-ups’. Stephen Timm writes on small business and is presently in Cape Town, South Africa. Click here to sign up to his monthly newsletter. Follow him on Twitter at @Smallbinsight and on Facebook.