By Anusha Ashwin
StartUp India was a Big Buzz of 2016. Here is a look at the highlights of achievements on the StartUp India vision articulated by Prime Minister Narendra Modi.
In 2016, India emerged as the third largest country to house startups across the globe. Prime Minister Narendra Modi’s vision first articulated from India’s iconic monument Red Fort on August 15, 2015 took wings. The plan got fine tuned and launched as the Startup India Movement in January of 2016. The Action Plan laid down the roadmap for creating conducive ecosystem for the growth of startups in India. Considerable progress followed in strengthening the ecosystem in terms of policies, tax benefits and financial extensions for startups in all verticals empowering men and women with self-employment opportunities.
Today, India is home to about 4,700 startups, behind the US and UK, but ahead of countries such as China and Israel, with about 1,400 new start-ups being founded in 2016, an 8-10% year-on-year growth, according to the report published by industry body Nasscom and consultancy firm Zinnov in 2016. The report estimates that the number of start-ups in India will more than double to about 11,000 by 2020.
While releasing the report, Ravi Gururaj, Chairman of Nasscom Product Council, had said that the startup landscape is undergoing a great churn with fast-paced changes happening across the board. Owing to focused funding and a growing need of scaling up capabilities, Indian entrepreneurs are going to continue in attracting global attention due to a perfect mix of talent, technology, traction and transactions.
Startup India Hub
The Government launched the Startup India Hub on April 1, 2016 to resolve queries and to provide handholding support to startups. The Startup India Hub, which has been established within Invest India, is a single point of contact for the entire startup ecosystem that enables exchange of knowledge. The Hub works in a hub-and-spoke model with government, VCs, angel funds, incubators, mentors, etc., It assists startups through their lifecycle, on all aspects, such as providing mentorship, incubator facilities, intellectual property support, funding, etc. Until November 2016, the hub resolved 23,290 startup queries that were received through telephone, email and Twitter.
In sync with the Startup Indian Action plan, India’s Finance Minister Arun Jaitley while presenting the Union Budget 2016 announced various special schemes and policies giving 100 percent tax deduction for three years. The nodal government body on startups, the Department of Industrial Policy and Promotion (DIPP), had announced that those applicants recognized by the government as startups and incorporated between April 1, 2016 and March 31, 2019 will get income tax exemption for three years.
The recent startup report released in November 2016 by Startup India Hub says that out of the total applications received, 99 applications were considered for tax benefits by the Inter Ministerial Board (IMB), as these startups have been incorporated after April 1, 2016. Of these, five startups have been approved for availing tax benefits.
In another major support, the government also scrapped the ‘angel investment tax’ on investors providing funding to startups. A Central Board of Direct Taxes notification, dated June 14, made the required changes to Section 56(2)(viib) of the Income-Tax Act, exempting startups raising funds from angel investors. This means resident angel investors, domestic family offices or domestic funds not registered as VC funds will now not have to worry about having to pay tax on the money invested in startups.
And, the long awaited constitutional amendment to Goods and Services Tax (GST) finally saw the light of the day. Given that the businesses in India face several hurdles in dealing with 29 states, 7 union territories and of course the central government, the uniform tax structure is definitely something to cheer about. GST is deemed to benefit the businesses of all sizes and nature, startups too can expect to look forward to better times ahead.
Fund of Funds
One key challenge faced by startups in India has been access to finance, and in order to provide funding support to startups, the Government has set up a fund with an initial corpus of Rs 2,500 crore and a total corpus of Rs 10,000 crore over a period four years. The Fund will be in the nature of Fund of Funds, which means that it is managed by SIDBI. The fund will invest in SEBI registered Alternative Investment Funds (AIFs) which, in turn, will invest in startups. Thus, this fund will act as an enabler to attract private capital in the form of equity and quasi-equity for startups.
In March 2016, President Pranab Mukherjee unveiled an online startup ecosystem platform called SIDBI Startup Mitra as part of an effort to scale up initiatives targeted at entrepreneurship development. The launch of the platform is in line with the objective of the government in forging innovation-led growth through various measures, including start-up action plan and Atal Innovation Mission. According to SIDBI, the platform will enable entrepreneurs in the startup community to get connected with various stakeholders, namely incubators, angel investors, and venture capital funds.
Individual State Policies & Support:
Five States in India have shown promising support to startups. Influenced by the central government’s efforts to promote the startup culture in India, the state governments too have formulated policies, allocated funds and set up incubators to boost the startup culture. Gujarat, Telangana, Karnataka, Rajasthan and Kerala have devised plans to nurture their own startups by setting up Incubators.
Catching global attention among all states currently is Telangana. Newly formed state Telangana aims to become a global hub for technology entrepreneurship and innovation in the country. In 2015, the Telangana Government launched the first phase of T-Hub, designed for technology-related startups. It was set up with a mission to catalyze the creation of one of the tightest and most vibrant entrepreneur communities in the world in order to encourage and fuel more start-up success stories coming out of India. T-Hub is a unique public/private partnership between the Government of Telangana, three of India’s premier academic institutes – IIIT-H, ISB & NALSAR – and key private sector leaders. It stands at the intersection of the startup, academic, corporate, research and government sectors.
Earlier in November, T-Hub celebrated its first anniversary and to mark that occasion, Telangana’s Minister for IT and Industries K Tarakarama Rao announced that the State Government would construct the world’s largest incubator facility as part of phase-II of T-Hub which could house 1,000 startups. The facility would be spread over across 3,50,000 sq ft and would be made available to entrepreneurs by 2018.
Apart from Telangana, Kerala has also been in news for startup reasons. The state government implemented the Technology Startup Policy in 2014 through its Nodal agency Kerala Startup Mission. Currently, the state has a 300-strong startup ecosystem in place. Showing signs of growth in 2016, startups from Kerala raised funds worth Rs 150 crore till September 2016. This is encouraging, considering that last year, startups in Kerala had raised just Rs 132 crore.
Karnataka cannot go without a mention. The Government of Karnataka, In July 2015, set up a dedicated Startup Cell for speeding up the implementation of the initiatives under its startup policy. According to the state’s IT Minister Priyank Kharge this is the first time in India that a government has come up with a dedicated Startup Cell guided by the Startup Policy, which envisages the growth of 20,000 new start-ups, including 6,000 product start-ups, by 2020 in Karnataka.
Additionally, Karnataka has increased its funding to enable the growth of the IT industry through its Karnataka Information Technology Venture Capital Fund (KITVEN)-1 and 2 funds. Under the Innovate Karnataka initiative, the State government will provide start-ups with financial support equivalent to approximately Rs 400 crore in the form of grant / equity. The State will also mobilize Rs 2,000 crore for investment in startups through government intervention alone over the next five years.
Another key development in Karnataka was the launch of Mobile 10X, in January 2016, a transformative initiative by Internet and Mobile Association of India (IAMAI) in association with Government of Karnataka was created to render a unique support facility for Indian App developers called GOK-Mobile 10X Start-up Hub. This Hub houses all resources and tools that an App Developer requires to convert his idea into a World class App. The Mobile 10X hub will enable app startups to achieve their potential by exposing them to a structured program and providing them tools specific to their needs for the entire cycle of App Development.
Gujarat is another important state that is showing vibrant growth. With an IT and Electronics Startup Policy launched in July 2016, the state has laid special emphasis on encouraging new ventures by providing them various incentives and subsidies. Under the policy, the state government would develop 50 incubators to mentor and guide 2,000 startups in the next five years, and attract an investment of Rs 7,000 crore.
Exponential Development of Incubators, Accelerators
According to NASSCOM report, there was a 40 percent growth in the number of incubators to reach to approximately 110 in 2015 as against around 80 in 2014. Approximately, 50 percent of total incubators are set up in non-metro cities i.e., outside NCR, Bengaluru and Mumbai. A growing number of educational institutes have started setting up incubator programs independently or jointly. Shri Ram College of Commerce, New Delhi for example set up an incubator to help their students in their own startups.
Presently, there are about 90 incubators supported by the Department for Science and Technology (DST), and some of these incubators like the Startup Village in Kochi are doing very well. Many of the incubators have seed funds, tie-ups with technical services, and mentors. With the rise in the number of startups and growing interest in entrepreneurship and the need to recognize good incubators, the Centre has certified 20 private organizations as incubators under the Startup India Action Plan. The Federation of Indian Chambers of Commerce & Industry (Ficci), the Associated Chambers of Commerce & Industry of India (Assocham), Indian Software Product Industry Round Table (iSPIRT), National Association of Software and Service Companies (Nasscom), Indian Electrical & Electronics Manufacturers’ Association (IEEMA) and Indian Angel Network and All India Biotech Association (AIBA) are among them.
In India, it is estimated that there are about 200 startup incubators of which, about 50% are set up in non-metro cities — outside NCR, Bengaluru and Mumbai. According to Nasscom, India is witnessing a 40% year-on-year growth in the number of incubators.
This year in July one incubator that drew global attention is the world’s first online digital incubator —SV.Co—launched by the Kerala government exclusively for college students to help them take up entrepreneurship. The program, modelled on technology incubators in the Silicon Valley, US, offers both regular and virtual incubation with regular incubatees being situated at its physical campus while virtual incubates can use the address of Startup Village for business communications.
Big corporates have also pioneered in setting up incubator programs to help the emerging startup ecosystem. For instance, Tata Group launched T-Hub, online payment giant Paypal setup PayPal Incubator, tech giant Infosys, as part of the Infosys Innovation fund, launched Infosys Incubator.
In November 2016, Tata Sons, the holding company of Tata Group, announced its intention to set up a startup incubator in Pune or Bengaluru to offer early-stage ventures better visibility to its group companies.