The Government’s Start-up India, Stand Up India plan is strong in spirit, but its success will depend on how well it is implemented over time, writes Preeti Balwani
The unicorn is a mythical beast of immense grace and beauty. It is believed that it is endowed with great strength and magical powers. In contemporary financial parlance, a start-up that achieves a valuation of one billion dollars is referred to as a unicorn. Such unicorns are not just limited to the developed world some Indian start-ups have also achieved such valuations and they have the potential to boost innovation, kick-start the economy, and generate employment.
While the Union Government has successfully rolled out the Start-up India, Stand Up India plan to encourage young entrepreneurs, the moot question is: Will this initiative improve India’s ease of doing business and deliver the unicornsIJ As it is said, the devil is in the details.
In order to gauge the effectiveness of this plan, we need to assess the needs and concerns of start-ups and evaluate if the plan will deliver on those requirements. What do start-ups wantIJ Primarily, they want ease of setting up business, reasonable freedom from licencing and inspector raj, and the ease of winding up business, as many start-ups will fail. The good news is that the Union Government has promised to deliver on all three problems.
The Government plans to roll out a single platform for start-ups. It has proposed that there will be a simple process to register a start-up, and a mobile app will be launched which will have back-end integration with the Ministry of Corporate Affairs and the Registrar of Companies to process registrations. The app is expected to be available from April 1 this year.
The Government has also proposed a self-certification scheme with respect to nine labour and environmental laws, stating that there will be no inspection during the first three years of the launch of the venture. This is a welcome move, as it will reduce regulatory burden, which will help entrepreneurs concentrate on business in their formative years. But one also needs to keep in mind the relevance of some of these concessions.
A start-up has, inter alia, been defined as an entity that is less than five years old, in which case concessions with respect to payment of gratuity to employees are irrelevant, as eligibility for gratuity requires an employee to have crossed the five year threshold. It should also be noted that start-ups face many laws and regulations beyond these nine legislations including laws and regulations imposed by the States they operate in.
Perhaps the Government is hoping that “competitive federalism” will kick in, motivating the States to loosen up if they wish to attract investment and generate employment. Keeping intervention from State Governments aside, the Union Government's own record at the Income Tax Department, the Enforcement Directorate and the Central Board of Excise and Customs, for example, is far from satisfactory.
The Start-up action plan also has other elements that may boost the animal spirits of entrepreneurs. For instance, the plan offers a tax holiday for three years. It is not yet clear if this will be applicable to start-ups from the date of registration or if there will be a three-year tax holiday within a larger window of, say, five years. In any case, this may be of little value as most start-ups are unlikely to make profits that early to take significant advantage of it.
There may be an unintended benefit, though, of keeping the taxman off their backs for three years. The faster registration of patents and protection of intellectual property and patents also should be a major boost. Other proposals like Start-up Fests and innovation awards are of doubtful value. The plan is strong in spirit but a lot will depend on how it is implemented.
(The writer is a partner at Rajani & Partners, Mumbai, and specialises in corporate commercial laws)