Startup India Scheme is a flagship initiative of the Government of India (GOI) intended to generate large scale employment opportunities which was launched in January 2016. India has managed to retain its position as the 3rd largest start ecosystem in the world with more experienced professionals taking up an entrepreneurship route. It has also scrolled up in 2018 to position itself 57th rank in the Global Innovation Index from the 60th position in the previous year. In addition, India also holds the title for the highest Unicom holder of 8 ventures right after the US and China (1). Department for Promotion of Industry and Internal Trade (DPIIT), GOI, is mandated to coordinate implementation of the Startup India initiative with other Government Departments viz. Department of Science and Technology, Department of Bio-technology, Ministry of Human Resource Development, Ministry of Labor and Employment, Ministry of Corporate Affairs and NITI Aayog. Hence, the Government wants the contribution of Micro, Small and Medium Enterprises (MSMEs) to India’s GDP to reach 50 per cent by 2024, from the current 29 per cent, and provide jobs to nearly 15 crore youths in the next four years, up from 11 crores at present. Further, these Startups and MSMEs are the foundation based on which Government’s both Atma Nirbhar Mission and Make in India Vision, aim at generating more employment, increasing exports, improving the standard of living of millions of Indians and making India strong globally. While there is enough potential for the startups to grow in the coming years, there are numerous issues before them which need to be addressed. Similarly, it is necessary to create awareness of the role of startups particularly in rural areas on the part of entrepreneurs, officers in Government and banks for which it calls for bringing success stories to the notice to them. In this backdrop, the present article is written to make an overview of promotion & development of startups in India, discuss a live success startup case and examine issues and suggestions.
How to set up a Startup:
To get recognized as a Start-up business under the Startup India Scheme, the firm must fulfill certain conditions (2). These include: (i) The firm to be formed must be a private limited company or a limited liability partnership. (ii) It should be a new firm or existing firm not older than five years and, its total turnover is not exceeding Rs. 25 crores. (iii)The firm should have obtained approval from the DIPP. (iv) To get the same, it should be funded by an Incubation Fund, Angel Fund or Private Equity Fund. (v) The firm should have obtained a patron guarantee from the Indian Patent and Trademark Office. (vii) It must have a recommendation letter by an incubation center and, (ix) The firm must provide innovative schemes or products. The application along with supporting documents including Certificate of Incorporation should be submitted to the Start-Up India Hub which will review & grant recognition as a Startup and issue a Certificate of Recognition. After receiving the necessary recognition as Startup, the next step is to go in for Registration. For this, it has to obtain PAN of the firm by preparing a brief write-up covering details of recognition received, how to generate revenue and business plan to solve problems. To promote and develop startups, they are eligible to receive liberal support n the form of incentives from the Government from the Government which are discussed as under:
Government Incentives to Startups:
Incentives are offered by the Government under different programmes. To elaborate, Make in India’ Vision was introduced in September 2014 to attract foreign investments and encourage domestic companies to participate in the manufacturing sector. Thereafter, the Government increased the foreign direct investment (FDI) limits for most of the sectors and strengthened Intellectual Property Rights (IPRs) as protection to instill confidence in the startups. Another commendable and far reaching initiative has been ‘Digital India’, introduced in 2015, is expected to ensure that the government services are made available to citizen through online platform that aims to connect rural areas by developing their digital infrastructure to provide huge business opportunity for startups. Similarly, as per the “Industry-Academia Partnership and Incubation” of the Startup India initiative, the Government has announced plans for the development of “Research Parks” to be created in partnership with higher education providers across India. An initial investment of Rs.100 crore, has also been set aside for the program, which aims to provide students with access to funds and mentorship for startups. Further, the ‘Innovation in Mobile App Development Ecosystem (I-MADE)’ program was rolled-out in February 2016 which aims to create mobile app startups in collaboration with leading Indian universities. More importantly, the 19–point Startup India Action Plan was launched in January 2016 which focuses on restricting hindrances and promoting faster growth by way of: (i)Simplification and Handholding (ii) Funding Support & Incentives and, (iii) Industry-Academia Partnership and Incubation.
As per the Startup India web-site, the Government incentives include: (i) Self Certification regarding fulfillment of conditions related to environment and pollution clearances. (ii) No inspection for the first 3 years (iii) Mobile app registration just in one day (iv) Startup India hub in a single point contact (v) 80 per cent rebate on patent filing fees (vi) 35 public/private incubators being in existence (vii) 31 Innovation centers being set up at national institute(viii) 3 new bio clusters and 7 new research parks being created 500 tinkering labs also available (ix) Patent regime to be simplified (x) Easier Public procurement norms and minimum requirements to get listed as a seller (xi Patent regime to be simplified (xi) Dedicated fund of Rs.2500 crore for startups, as well as a credit guarantee fund of Rs.500 crore rupees to offer a cover for loans provided by banks (xii) Income Tax exemption for a period of the first three consecutive years and also exemption on capital gains & investments above the Fair Market Value and, (xiii) Easy winding up on completion of seven years from the date of incorporation/registration and the turnover for any previous year exceeding Rs.25 crores and also easy exit from business under Insolvency and Bankruptcy Code (3). These and other incentives are made available under different schemes specially formulated for startups which are classified into traditional and new.
These schemes aim to provide funds, banking, accountancy, product description, overall development, legal backing, branding, design, launching, publicity, marketing etc. These schemes are launched by different Government departments/sponsored organizations such as National Small Industries Corporation (NSIC) etcand lending institutions including Small Industries Development Bank of India (SIDBI), National Bank for Agriculture and Rural Development (NABARD) and banks. The major traditional schemes are meant for providing: (i) Support for International Patent Protection in Electronics and Information Technology (ii) National Clean Energy Refinance Fund (iii Modified Special Incentive Package (iv) Performance and Credit Rating (v) Raw Material Assistance (vi) Support for Promotion of Innovation (vii) Entrepreneurship Development in Agro-Industry (viii) Coir Udyami Yojana (ix) Udaan Training Programme for Unemployed Youth of J&K (x) Loan for Rooftop Solar PV Power Projects (xi) Dairy Entrepreneurship Development (xii) Single Point Registration (xiii) Support for International Patent Protection in Electronics & Information Technology (xiv) Cluster Development by Khadi and Village Industries Commision (KVIC) (xv) Grant to Professional Bodies & Seminars/Symposia in Science & Technology (xvi) Establishing Collaboration between R&D Academic institutions and Industry (xvii) Grant for New-Gen Innovation and Entrepreneurship Development (xviii) Venture Capital Assistance Scheme for Agri-entrepreneurs (xix) Stand-up India for SC/ST and Women Entrepreneurs (xi) SIDBI Sustainable Development Projects for Energy Efficiency and Cleaner Production (xx) SIDBI- Make in India for enterprise and, (xxi) Working Capital finance by banks. Details of these schemes are available by visiting NSIC web-site (4).
(B) New Schemes:
:(i)Startup India Seed Fund Scheme, 2021- The scheme provides seed funding, inspire innovation, support transformative ideas, facilitate implementation and undertake startup revolution. It aims to provide financial assistance to startups upon verification of concept, prototype development, product trials, market entry and commercialization The scheme is expected to support around 3,600 startups through 300 incubators. It is also proposed to create a corpus of Rs. 945 crore which will be divided over the next 4 years for providing seed funding to startups through incubators in Tier 2 and Tier 3 towns which are often deprived of adequate funding. It is planned to encourage innovators from rural entrepreneurs to come forward and benefit from this scheme (5).
(ii)Pradhan Mantri Micro Units Development and Refinance Agency (MUDRA) Yojana- This provides funds to banks for on-lending to micro-finance institutions and non-banking financial institutions (NBFCs) at low rates. Loans up to Rs 10 lakh can be availed under MUDRA scheme. It was launched in 2015 and within 2 years, more than 1.8 crore jobs were generated. Till August end, 2020, more than 67 lakh loans amounting to Rs 48,000 crores have been sanctioned under the MUDRA scheme. There are three categories startups which include: (a) Shishu: This is for new businesses being eligible for loans up to Rs 50,000. (b) Kishor: This is for mid-aged businesses to get up to Rs 5 lakh and, (c): Tarun: This is for existing & experienced businesses to receive up to Rs 10 lakh can be availed. This MUDRA loan scheme also covers MSMEs such as Small Manufacturing Units, Retailers, Wholesalers, Artisans etc.
(iii). Credit Guarantee Trust Fund for Micro & Small Enterprises (CGTSME) – This is one of the biggest Startup loan schemes launched by the Ministry of MSME. Under this scheme, collateral-free loan up to Rs 1 crore is provided to eligible startups and MSMEs. Now, the guarantee cover is available up to Rs. 5 lakhs.
(iv). Financial Support to MSMEs in ZED Certification Scheme – This covers both existing and new manufacturing units under Zero Defect and Zero Effect (ZED) mission with a view to create better products, with high quality and zero defects which, in turn, aims to embrace the world-class manufacturing processes, and use of advanced technology.
(v) Credit Linked Capital Subsidy for Technology Up-gradation (CLCSS) – Under this scheme, the Government provides financial help to MSMEs to upgrade their technology and implement state of the art technological platform for their business. The subsidy of 15 per cent is provided for investment up to Rs 1 crore for upgrading technology for startups and MSMEs. More than 7500 products/services are covered under this scheme.
(vi). Design Clinic for Design Expertise to MSMEs- In order to encourage and inspire small businesses to experiment and try out new designs for their products, the Government has created a Design Clinic for inducing design related expertise for startups and MSMEs. Under this scheme, the Government provides the grant up to Rs 60,000 for attending design seminars and up to Rs 3.75 lakh or 75 per cent of the cost of the seminar, wherein the entrepreneur can learn and implement design theories and practices.
(vii) Development of Portal- An online portal is created by DPIIT which allows incubators to apply for funds (6). An Experts Advisory Committee (EAC) has been created by DPIIT to execute and monitor the Grant up to Rs 5 crore offered to the eligible incubators selected by the EAC. By availing the grant from the DPIIT, the selected incubators provide loans to banks for on-lending to the enterprise up to Rs 20 lakhs. Further, investment up to Rs 50 lakhs is also provided to the startups for market entry, commercialization, or scaling up through convertible debentures or debt-linked instruments. The promising startups that are supported at their early stages, shall create huge employment opportunities for everyone. The scheme also envisages to promote virtual incubation for Startups by enabling incubators to support startups from all corners of the country. Towards this end, an Action Plan for Startup India is already prepared by the Government in January 2021. In the first meeting of the National Startup Advisory Council held in April 2021, it was found that startups have the potential to become the World’s largest and most innovative startup ecosystem. As a first step, there is a need to sow the seeds of entrepreneurship even at school level to encourage students to innovate. The Council also calls upon the successful entrepreneurs to take initiative to share their knowledge, experience, ideas and mentor the other entrepreneurs
Progress of Startup Scheme in India:
As per the Startup India web-site, the number of startups stood at 41,061 in December 2020 which provided jobs to 4.7 lakhs to persons (7). These provide jobs with an average of 11 employees per startup. Encouraged from this development, a Fund of Fund for startups (FFS) is created with a total corpus of Rs. 10,000 crores. Among the startup industries, the Indian pharmaceutical market is the fastest-growing and the most competitive amongst all in the world. The revenue generated in 2020 amounted to $55 million, clearly indicating that there is enough scope for profit in the domain. Location wise, startups are setup are set up in 492 districts in 29 states and six Union territories. Startups are spread and far wide since these seen in Tier 1, Tier 2 and Tier 3 cities with the percentage share in the total startups of 55, 27 and 18 respectively. Gender wise, nearly 15 per cent of them are set up by woman entrepreneurs. Regarding growth in different segments, Enterprise Software witnessed a growth rate of 16 per cent with over 1100 ventures and, so did the FinTech segment with a growth rate of 14 per cent. More than 900 startups are due to the onset of innovative technology in payment, lending and banking. Similarly, the seamless digital transaction process for consumers has brought about 500 million new users and, thus, increasing internet penetration by 12 per cent. Integrating a tech-platform, connecting doctors and patients, has also led to a significant rise of 8 per cent in Health Tech space. Over 500 startups in this domain have come up, comprising online pharmacies, wearable solutions for fitness tracking and coaching, health monitoring devices, consultation platforms etc. In the same way, the technology-induced educational solutions for the new generation of learners and the wide level of acceptance in the ecosystem, has resulted in the creation of over 400 startups implying a growth rate of 6 per cent in the last five years. Industry verticals like logistics and transport, industrial & manufacturing, consumer software, food-tech, HR-tech and retail-tech witnessed a growth rate in the range of 2-5 per cent. The others including automotive, travel, media & entertainment, ad-tech, real estate, gaming, security, etc. have a collective growth rate of 24 per cent. Thus, the number of startups incorporating advanced technology in their business has soared and is constantly expanding at 40 per cent CAGR. These include artificial intelligence, block-chain, 3D printing, drones, automation vehicles etc.
The report of Pilot Survey of Startups, conducted by RBI in 2019 shares additional information relating profile of startups (8). A total of 1,246 startups participated in the survey. As per the survey findings, the startups are mainly in six sectors, viz., agriculture, data & analytics, education, health, IT consulting/solution and manufacturing. According to them, market/industry demand and team experience have been the major enabling factors for setting up the startups. Almost half of them informed that they were in an early stage of revenue generation while 31 per cent of the same were in a growing stage. The average annual turnover for over one-fourths of the respondents was up to Rs 10 lakhs whereas around 20 per cent startups did not report any revenue generation. Less than one-fifths of the respondents reported that their average annual turnover exceeded Rs. 1 crore. Only 14 per cent of startups had more than 10 employees in the first six months of their operation but as the sector matured, the number of employees increased to 40 at the time of conducting the survey. Lastly, it is shocking to note that just 36 per cent of the startups availed institutional loans (including from banks) to finance their activities, indicating that borrowing from friends and relatives has been the major source of finance. The survey concludes that there are numerous emerging business opportunities due to recent developments which are worth examining.
Emerging Business Opportunities:
The recent National Education Policy of 2020 envisages to promote student entrepreneurs by offering vocational education in partnership with industries and introducing coding for school children. This can have a favorable impact on the startup ecosystem in India, if entrepreneurial skills are integrated with the education curriculum under the New Education Policy. In addition, there is a need to fill up infrastructure gaps especially in rural areas, promote digital literacy and help people become more knowledgeable about the digital world. In this regard, the Government initiative of Saksharta Abhiya Digitalization is a step in the right direction. Regarding Agri-startups, since the majority of Indian workforce is employed in agriculture, there is a need to clear roadblocks and promote them in a large number. Fortunately, the new Farm Laws are expected to give a greater choice to farmers and incentivize start-ups to transform the agriculture value chain in storage, finance, transportation, aggregation, and marketing. Further, in respect of the Startups in High-end Technology, the recently released Draft Space Communication Policy states that “Indian entities in private sector shall as well undertake design, development and realization of satellites and associated communication systems. They can establish satellite systems through their own or procured satellite”. When this happens, there are possibilities for startups to come up in a big way. Similarly, with the introduction of the Startup India scheme, there has been a change in approach and mindset from job seekers to job providers. This would create a pool of new entrepreneurs to make Startups to become the backbone of New India. The present Government is also promoting Make in India policy which would encourage the startups to take up production of import substitutes. Thus, startups are likely to witness brighter days ahead to benefit from emerging business opportunities to generate more employment and become society friendly.
Issues and Suggestions:
India is a highly diverse country with a plethora of cultures, languages, ethnicities and religions. Due to this, the startups’ understanding of people at large is often limited to certain regions. Hence, comparative advantages are linked to specific regions only and not Pan India. (9). Further, as nearly 70 per cent of the Indian population lives in rural areas and, therefore, customers of the mass market tend to come from low-income backgrounds in villages. This often discourages many startups to come up with high value product/services. More importantly, the current pandemic-induced lockdowns and curfews by states have brought along uncertainty, struggles and challenges for smaller startups and MSMEs. According to a recent survey of 2140 startups and SMEs conducted by the social media platform, only 22 per cent of them have over 3-months runway; while 41 per cent are either out of funds or have less than one month of funds left (10). Therefore, they propose to reduce advertisements and new marketing initiatives, and also look at reducing operational costs. Further, 60 per cent expect to scale down, or shut operations. Thus, startups and SMEs are struggling for survival, especially since the onset of the covid-19 since 2020. While RBI has introduced several measures including debt restructuring -1&2 to reduce the burden of loan repayment during the pandemic, much is expected from banks to yet to come forward and offer the need based and timely finance. Regarding workers, many job applicants are not sufficiently skilled. Thus, startups see a gap between the knowledge taught to students in colleges and the knowledge needed for the jobs, especially in sectors in which technologies change at a fast pace. At the same time, startups can not afford to attract highly skilled workers due to their weak financial position. Lastly, risk associated with the business of startups is high due to higher rate of mortality though the Government is supporting them in all possible ways.
In particular, despite several business opportunities for startups in the coming years, it is observed that most of them fail and wind up their business right at the initial stage. In this regard, IBM Institute for Business Value conducted a survey of startups to find out reasons for them to fail at the initial stage itself (11). Such reasons include: (i) Lack of Initiative – Indian startups are also known for replicating global startups, rather than creating their own startup models. In this regard, it is suggested that Indian startups should try to avoid emulating existing successful global startup ideas in India without proper research and understanding of the Indian market. (ii) Lack of funds- As discussed earlier, most of the startups raise funds from friends & relatives which are not sustainable and cheaper. Therefore, it is suggested that lending institutions have to be more friendly to startups by simplifying procedures and provide loans on soft terms. (iii) Lack of focus- The failure is certain when too many items of products /services are taken up right at the beginning itself. In this context, it is suggested to focus on only one item of product/service to start with and, after gaining sufficient experience in the line, the other products/services shall be thought of. (iv).Lack of demand- Entrepreneurs are suggested to gain an in-depth understanding of who their customers are and what they feel about their product/service. Similarly, they should look for new customers via word of mouth before jumping into creating expensive marketing plans. More importantly, it is necessary to establish a relationship with the customers. (v) Lack of leadership- Having a good idea is far less important than knowing how to lead a brand, a company, and a team. Lack of vision and strong leadership is another common reason why startups fail. Here, it is suggested that entrepreneurs shall develop a fair understanding of leadership qualities through education and training. Also, at the initial stage, it is a good idea to find a mentor to help the entrepreneurs to develop leadership skills. (vi) Lack of agility- One of the reasons is not being adaptive and agile in order to progress. Startups are advised to ensure agility within the organization by practicing continuous learning, having a fluid workforce, research and development and be willing to let their ideas to change. (vii) Lack of business model- The startups should look for a foolproof business model carefully to sustain and profit. (viii). Lack of talent & competency- Most times startups are cash strapped and cannot afford to hire experts. Therefore, the entrepreneurs are suggested to plan their hiring processes with utmost care, create alternative working methods such as work on a project basis model with expert professionals etc. Lastly, (ix). Ignoring customers – Quite often startup founders have too many things to handle and, in the process, customers may not even feature in their list of priorities. But, when startups are committed to being customer-centric, their decision-making becomes easy, their focus gets narrowed down and their popularity increases from a word of mouth.
Currently, startups are witnessing a golden chapter in the history of Indian entrepreneurship. In this respect, the Government acts as a catalyst and bring together the synergies of the private sector with the aim of innovating for India and the world. With hundreds of innovative youngsters choosing to pursue the path of entrepreneurship instead of joining the multinational corporations and government ventures, the business world has witnessed an explosion of ground-breaking startups providing solutions to the real problems at a mass level since 2016. While startups experience ample business opportunities in the coming days, the Government’s initiatives are praise worthy in providing all possible help in respect of non-financial aspects of promotion and development of startups, much needs to be done on the part of banks which meet just 36 per cent of credit needs. There seems to be some hesitancy on the part of banks due to their perception of high risk being associated with lending to startups. But, there good many success stories due to liberal credit provided by banks. Added to this, startups provide employment to youths mostly in smaller towns which is one of the priorities of the Government. In addition, credit guarantee cover is now raised up to Rs. 5 lakhs. Hence, it is suggested that banks have to create a pool of trained officers to finance startups and adopt professional approaches in credit appraisal, follow-up and recovery. Thus, realizing the growing importance of startups in the coming years, banks have to change their mindset and be liberal in providing timely and credit adequate credit to startups. Towards this end, .banks have a long way to go to be startups friendly.