Modi’s Start Up India has created a massive buzz and generated plenty excitement among Indian entrepreneurs.
However, all entrepreneurs must understand how the scheme ticks before chanting their hoo-hoos and rah-rahs.
Here are a few factors that will help you understand what all may be included in the fine print:
Any person with an idea, no matter how killer it may be, may not be eligible. The Government has yet to release the eligibility criteria, which it will before April 2016 when the scheme kicks in.
So do not jump at joy if your idea sounds good. Hold on to your euphoria yet.
The government will likely disqualify existing entrepreneurs who shut down their old startups to take advantage of the new scheme.
80% Reduction In Patent Fees
How much will that benefit? How much are patent fees in India anyway? About Rs 30,000 to 50,000 at the most.
A start up needs crores and while the 80% saving in patent fees will make a miniscule difference, this is not a meaningful saving.
The Government has yet to set the percentage of the project cost it will finance. Naturally, the owner also has to pump in capital. In fact, many folks feel that it will all boil down to the capital that is contributed by the owner. Some participants say that the government will contribute up to 40% subject to a ceiling of Rs 10 crores.
If that is true, only the rich will be able to exploit this scheme.
Registration Through App
This is a good move that cuts through red tape, but does not take away all the formalities or the laws required for registration. The site or app will allow entrepreneurs to file their documents and declarations online without having to visit the Registrar’s office. The scheme does not say whether the number of documents that are required to be filed will be reduced, or whether a different set of rules will apply.
Therefore, this clause will at best save the entrepreneur a few trips to the Registrar and having to deal with the Babudom out there.
No Income Tax For Three Years
Which startup makes money in the first three years? Amazon is in its 15th year of existence and it has gotten into the black mainly because its cloud server business is going great guns. It sank billions of dollars in its initial four years, spent some more during the bust, and is now the largest retailer in the world. But that’s another discussion.
Bottomline is that almost all product startups will not make any money in the first few years.
Only the service oriented startups will benefit from this clause because these can start generating cash from Month 1. This clause will not help product companies.
We yet have to see some clarity on this. Exiting a business involves laying off people. If this scheme creates an entrepreneurial bubble, it will leave many people unemployed and without hope in sight.
Fund of Funds
The Government plans to invest up to Rs 10,000 crores spread over a period of 4 years (Rs 2,500 crores per year). However, some fund managers say that this fund of funds was there 2 years ago and this announcement is recycled.
These were some of the clauses that must be clarified. Some positives include setting up of incubation labs, setting up research parks, credit guarantees, exemption of capital gains (so long these are invested in government funds), destruction of some red tape, facilitating public procurement from manufacturing start ups, and a couple more.
The government knows that though the plan sounds good on paper and has already captured the imagination of young entrepreneurs, 200 top startups have preferred to register their businesses in Singapore or US because doing business is easy in those countries. What lies ahead in this scheme and how it is implemented poses a serious challenge for the government.
To sum up, and before we make a positive or negative comment, one must wait for the details because the devil will be in them.
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