Daily Current Affairs – 21st January, 2017

Daily Current Affairs – 21st January, 2017

Start-Up India and Its Problems

Introduction

The Start-up India, Stand-Up India campaign was initiated by the government last year with the intention of providing handholding support to upcoming ventures, promoting entrepreneurship, offering financial support and also allowing tax breaks.

Provisions of Start-up India

Certain essential features of the Start-up India campaign are:

  • Government funded corpus worth Rs. 10,000 crores.
  • Credit Guarantee Corpus of Rs. 500 crores per annum to be used for four years.
  • Mobile Application for registration of start-up ventures.
  • Tax exemptions under the Income-tax Act, 1961.
  • Self certified labour compliance and exemption from labour inspections.
  • Award for incubators supporting the start-ups.

Provisions of Stand-up India

  • Composite Loan between Rs. 10 Lakhs and Rs. 100 Lakhs
  • Loan available for SC/ST and women entrepreneurs above 18 years of age.
  • Loan available for green field projects only.
  • Enterprise whether in the manufacturing, trading or service sector is eligible for the loan.

Problem Areas

As the programme enters its second year of operation, not much progress has been seen. Very few start-ups have become a part of the plan and government is also struggling with the basic design issues. As a result, the government is facing the following challenges:

Problems related to Venture Capitals

Corpus Contribution

Venture capitalists (VC) were supposed to receive funding from Small Industries Development Bank of India (SIDBI) managed corpus of Rs10,000 crores. However, no money has been disbursed under this plan even though SIDBI has already sanctioned money. This is because, in the funding so provided, the bank only puts in 15% of the total corpus and the balance is to be contributed by the VC itself. In such a scenario, where the VCs are failing to raise funds the entire programme is suffering to take off.

Investment Limitations

Under the programme the government had initially stated that VCs could only early-stage start-ups. This restricted the investment options of VCs. Subsequent lack of interest by the VCs led to alteration of rules under the programme.

SEBI Registration

Another challenge that the VCs faced was the mandatory registration of participating investors with the Securities and Exchange Board of India (SEBI). Since many VCs are not registered, this led to them being barred from being a part of this scheme.

Problems related to Start-ups

Access to the Scheme

As a result of the eligibility criteria the access to the start up India programme is complicated to such an access that the government received only about 1,368 applications and out of these, only 502 were recognized as start-ups.

Tax Benefit Availability

Even tax benefit access is complicated and as a result only eight start-ups have been granted tax benefits under the scheme. Further, the provisions for allowing tax benefits assume that the enterprise will be profitable within three years of operation. Hence, the tax benefit ended up being redundant because there were no profits in such a short span on which the start-ups could avail these benefits.

Incubators Availability

Industry-academia partnerships through new incubators could have been a huge boost for the start up India programme. However, the lack of sufficient incubators has also been another hurdle in the way of success of this programme. Only recently, established incubators have been selected to receive government funding to scale up operations.

Conclusion

The government now needs to ensure that it provides an enabling environment to the start-ups rather than treating it like an infant industry. Government needs to move towards rationalising its approach. Government funds can only short-circuit the process.

There is no doubt that such large scale programmes do take time to come up with the expected results but it has to be ensured that all efforts to push the programmes are on track and stay viable. For this to happen, all stakeholders need to come together and put in the required efforts. The entire burden cannot be put on the government. The private sector, the research and development organisations also need to step in.

Connecting the dots

  • Discuss the provisions and objectives of the Start-up India Programme. Critically analyse the performance of this programme since its inception.

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