India’s focus on entrepreneurship

The last year has seen the Indian government steadily work towards its commitment to create an environment that encourages entrepreneurship and startups in India. The Micro Units Development and Refinance Agency (Mudra) Bank was launched in April 2015 to facilitate access to credit for micro, small and medium enterprises (MSMEs) through alternate non-banking and microfinance institutions. The Mudra bank falls under the larger Pradhan Mantri MUDRA Yojana, which is aimed at offering funding to the non-corporate small business sector. About 57.7 million small businesses are eligible to receive funding under this scheme. On January 16, the Narendra Modi administration rolled out Startup India, its most comprehensive campaign yet for Indian startups.

The Startup India mission foresees the creation of business incubators and research parks across the country to support potential entrepreneurs. As part of the mission, the government released a 19-point action plan that lays out the channels through which the government can kick-start and aid the growing startup community. The government has already taken the lead with the Human Resource Development Ministry and the Department of Science and Technology, partnering with them to set up over 75 startup hubs in educational institutions such as the National Institutes of Technology (NITs), the Indian Institutes of Information Technology (IIITs), the Indian Institutes of Science Education and Research (IISERs) and the National Institutes of Pharmaceutical Education and Research (NIPERs). The program has already garnered massive support from the business community. The Japanese company SoftBank has proposed to increase its investment in Indian startups to $10 billion.

What is Startup India offering?

  • Three-year tax exemption for startups
  • $1.5 billion in government funding for entrepreneurs
  • An 80% reduction in patent registration fees
  • An app to help entrepreneurs register easily
  • Venture capital investment to be exempted from capital gains tax
  • No government inspections for the first three years of the startup
  • Innovation program to launch 500,000 schools to reach 1 million students
  • Startups to adopt self-certification to minimize regulatory liability
  • Provision that allows startups to close down within 90 days
  • Startups in manufacturing sector to be exempted from the requirement of prior ‘experience/ turnover’

The Startup India Action Plan comes at an opportune time, with over 4,200 startups presently in India. According to Nasscom, startups created 80,000 jobs in India last year, and the reforms promised by the government could not only boost and foster entrepreneurship but also help employ the country’s large young, increasingly educated population. It also targets student entrepreneurs, offering them special incentives.

It remains to be seen, however, what shape these policy reforms will take. One of the biggest challenges the government will face is harnessing the required infrastructure capacity at the central and state levels for these businesses to attain their potential. The government will also have to play a proactive role to attain better rankings in international indicators such as the ease of doing business to gain the trust of entrepreneurs and investors.