THE INDIAN STARTUP ECOSYSTEM: A PILLAR OF SUPPORT

It is been said that the India has the third largest ecosystem in this world after after the US and China and the pace of growth is keep increasing. The US tops the list with 396 unicorns, while China is at the second spot with 277 observed from the data from Hurun Research Institute. India’s unicorns are currently worth $168 billion. In the midst of the startup boom India took up the Unicorn Tally to 54 replacing UK to third place in the world.

What is Unicorn?

Unicorn is the term most closely associates with startups describing any privately held company that has touched the valuation of more than 1 billion dollars. Startups are the one which focus on proposing innovative solutions which sometimes creates entirely new business model like ride-hailing service UBER.

How many Unicorns does India Have?

In the August 2021 bulletin of RBI, It was observed that India has estimated 100 Unicorns. Ut of which 10 new ones created in 2019, 13 in 2020 and 3 a month in 2021. It has been observed that FinTechs, including e-commerce, have been leaders in the Indian Unicorn Landscape and make up about 30 percent of the value of the Indian Unicorn System.

However not only FinTech Sector, but also Indian startups in sector like education technology, food delivery and mobility have also gone unicorn.

The Next Rising Unicorns

Apart from Unicorns, the number of future unicorns called Gazelles and Cheetahs in India is also growing at an aggressive pace. Gazelle is startup founded after 2000 with the potential to go unicorn in two years with estimated valuation ranging from 500 million to 1 billion dollars. Whereas, Cheetahs may go Unicorn in four years with estimated valuation ranging from 200 million to 500 million dollars.

Benefits Given by Indian Government to Startups

 

  1. Recognition of Startups

Government had launched Startup India Scheme in the year 2016, to boost the domestic startup ecosystem. This scheme helps startup to register with the government and get recognised by the government and avail the benefits mentioned therein.

 

A startup registered with DPIIT that is Department for Promotion of Industry and Internal Trade enjoys the benefit across the range of laws and regulations along with fiscal and infrastructural support.

 

 

Till date, around 50000 startups have been recognised as startups by DPIIT, present across 623 districts with atleast one startup in each State and Union Territory. While Maharshtra, Karnataka, Uttar Pradesh and Gujarat has the highest thnumber of startups. Moreover, states and union territories also have announced specific policies to support them.

 

  1. Block Chain based validation framework.

Currently, Strartups need to make separate submission to regulators, intermediaries and authorities that increases not only the time related to compliance but also leads to duplication of efforts.

 

Therefore, in order to reduce the compliance burden on startups, The Indian government is focusing on making blockchain based validation frameworkthat could simplify the submission of documents in various agencies.

 

With the help of this framework, the government agencies can instantly access the documents for authentication and verification of documents available on the chain.

 

This framework will enable multiple agencies such as the Central Board of Direct Tax, banks and public sector undertakings to access, authenticate or approve documents and data available to all stakeholder on chain.

 

  1. Funding

On of the biggest challenge startup faces in its initial year is funding A startup may require funding for purposes such as prototype creation, product development, team hiring, working capital, legal and consulting services, raw materials and equipment, marketing and sales, and more.

 

This is where Indian Venture Capatalist comes into play. A venture capitalist is an investor that financial A VC is an investor that financially supports a startup that has the potential to reshape markets and grow rapidly in return for an equity stake. Apart from this, a Venture Capitalist also provides startups with mentorship and guidance at different stages of their journey to really unlock the company’s potential.

 

It has been observed that the top 10 Indian Venture Captalists have backed more than 420 ventures and participated in nearly 600 funding rounds till date and the numbers still keep increasing. Apart from Venture Capitalists, Startups can also avail the benefits of Alternative Investment funds in which The startups will be eligible for Rs.10000 crore funds of funds from the Alternative Investment Funds. Or Credit Guarantee Funds wherein The startups can avail Rs.2000 crore Credit Guarantee fund through the National Credit Guarantee Trust Company or SIDBI over 4 years. Provided, the startups have to register with DPIIT or can also avail the benefit of Start Up India Seed Funding Scheme.

Other Benefits for DPIIT Recognised Startups

  • Self-Certification:

After obtaining DPIIT Certificate of Recognition of Startup, the entity will be allow to self certify the compliance under environmental and labour laws.

 

  • Start-Up Patent Application:

The DPIIT recognized startup are required to pay only 80% of the fees on Patents, trademark, copyrights and design, and the fast-tracking of a patent application will be available for startups.

 

  • Easier Public Procurement Norms:

The DPIIT recognized startups will get an opportunity to list the product on Government e-Marketplace.

 

  • DPIIT recognized startups are exempted from submitting Earnest Money Deposit

Exemption from Prior Experience/Turnover is provided for Start-ups in all Central Government ministries and departments.

 

  • Easy winding up of Company:

According to the Insolvency and Bankruptcy Code, 2016, the company can be wound up within 90 days of applying for insolvency

 

  • Tax Exemptions

The startup can petition for tax exemption under section 80 IAC of the Income Tax Act after receiving the Certificate of Recognition.

Angel Tax Exemption is available to startups that have been recognised by the DPIIT. Furthermore, after receiving tax exemption approval, DPIIT-recognized startups are excused from paying income tax for three consecutive fiscal years out of the first ten years of operation..

Concession to Startups regarding labour laws

 

The Ministry of Labour & Employment has issued an advisory to the States/UTs/Central Labour Enforcement Agencies for a compliance regime based on self-certification and regulating inspections under various Labour Laws in order to promote the startup ecosystem in the country and incentivize entrepreneurs in setting up new start-up ventures and thus catalyse the creation of employment opportunities through them.

It has been suggested that if such start-ups provide self-declaration for compliance with nine labour regulations during the first year from the date of the start-up, there will be no inspection under these labour laws, wherever applicable. The Labour Laws to be covered under this are:

  • The Building and Other Constructions Workers’ (Regulation of Employment and Conditions of Service) Act, 1996
  • The Inter-State Migrant Workmen(Regulation of Employment and Conditions of Service) Act, 1979
  • The Payment of Gratuity Act, 1972
  • The Contract Labour (Regulation and Abolition) Act, 1970
  • The Employees’ Provident Funds and Miscellaneous Provisions Act, 1952
  • The Employees’ State Insurance Act, 1948

Such start-ups are required to file self-certified returns from the second year onwards, for a period of up to five years after the units are established, and will only be inspected if a credible and verifiable complaint of violation is filed in writing and approval has been obtained from higher authorities. The nine labour laws, included are:

  • The Industrial Disputes Act, 1947;
  • The Trade Unions Act, 1926;
  • The Building and Other Constructions Workers’ (Regulation of Employment and Conditions of Service) Act, 1996;
  • The Industrial Employment (Standing Orders) Act, 1946;
  • The Inter-State Migrant Workmen (Regulation of Employment and Conditions of Service) Act, 1979;
  • The Payment of Gratuity Act, 1972;
  • The Contract Labour (Regulation and Abolition) Act, 1970;
  • The Employees’ Provident Funds and Miscellaneous Provisions Act, 1952; and
  • The Employees’ State Insurance Act, 1948.

State and Union Territory Startup Policies

A state’s startup policy is key in providing startups with the necessary finance, mentorship, and market access support they need to thrive as important revenue and job-creating contributors to the state’s economy. It also includes provisions to incentivize important startup stakeholders such as incubators and institutes of higher education, among others, in order to encourage India’s startup ecosystem’s holistic development. The Startup India team assists states with the creation and implementation of respective startup policies.

  • A specialised Startup Policy is now in place in 30 of the 36 states and union territories.
  • After the start of the Startup India initiative in 2016, 26 of these Startup Policies were produced.
  • Each of the 36 states and union territories has at least one DPIIT-recognized startup, and each of the 623 districts has at least one DPIIT-recognized startup.

Apart from State and Union Territory policies, Central government of India has given around 124 more scheme for the benefits of startup which one can get from the startupindia.gov.in website.

India Becoming the Next Tech Hub

India as a nation ranks highly among the countries and jurisdictions that show the most promise developing innovative technologies. The Fact that India ranks high, for which, the credit goes to few handfuls of cities that showcased tremendous potential and room for growth.

New computer and software policies were established in India in 1984, and hardware and software imports and exports were liberalised. This made it possible for companies like Wipro and Infosys to be established in Bengaluru and hire Indian programmers. Ties were also formed with American firms that provided superior systems that Indian software firms benefited greatly from. Texas Instruments Inc. was the first multinational corporation to establish a development centre in Bengaluru in 1985, setting the path for many MNCs to follow in the years and decades that followed.

As trade tensions between the United States and China continue, India has an opportunity to attract technology-led investment as a viable option. Furthermore, increased government R&D investment and improved skilled labour quality could put India in a better position to compete with China for technology-driven market domination.

Conclusion

While foreign investors have previously been hesitant to invest in Indian companies due to the country’s high risk rating, India’s rapidly growing start-up ecosystem, combined with strong policy reforms, improved investment facilitation, and increased ease of doing business, has resulted in over $80 billion in foreign investment in the 2020-21 fiscal year. Domestic investment is also increasing, as Indian businesses become more aware of the opportunities presented by the country’s rapid digital transformation. Thus one can rightly say that the best place for founder to startup their place is India.

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