Redefining Startups under Startup India

It goes without saying that there are several inadequacies in the current definition of startups under the recent Startup India Action Plan.

First, let’s have a closer look:

Department of Industrial Policy and Promotion
NOTIFICATION: New Delhi, the 17″‘February, 2016

G.S.R. 180(E) -The government of India has announced ‘Startup India’ initiative for creating a conducive environment for startups in India. The various Ministries of the Government of India have initiated
a number of activities for the purpose.To bring uniformity in the identified enterprises, an entity shall be considered as a ‘startup’-
a) Up to five years from the date of its incorporation/registration,
b) If its turnover for any of the financial years has not exceeded Rupees 25 crore, and
c) It is working towards innovation, development, deployment or commercialization of new products, processes or services driven by technology or intellectual property;
Provided that any such entity formed by splitting up or reconstruction of a business already in existence shall not be considered a ‘startup’;

Various industry experts and startup entrepreneurs are of the view that subjectivity in the definition of startups hamstrings their ability to claim incentives under the “Startup India” initiative. For instance, the prevailing revenue margin is too steep and may end up eliminating several unprofitable high-growth startups, which help in job creation.

Let’s look at other relevant excerpts too:

Provided that the mere act of developing:
a. products or services or processes which do not have a potential for commercialization or
b. undifferentiated products or services or processes, or
c. products or services or processes with no or limited incremental value for customers or workflow would not be covered under this definition.

4. An entity is considered to be working towards innovation, development, deployment or commercialization of new products, processes or services driven by technology or intellectual property if it aims to develop and commercialise:

a. A new product or service or process, or
b. A significantly improved existing product or service or process, that will create or add value to customers or workflow.

The current yardstick for a startup to be ‘new’ may rule out various startups with similar product/service offerings. For example, GoDoctor will not fall under the scope of this definition because of Practo. In addition, phrases and terms such as “potential for commercialization” and “differentiation” respectively, are hard to establish given their subjective nature. In other words, they are incapable of going through an objective assessment.

There is a need to have a broader definition of start-ups to encourage the spirit of self-employment in India. The Government needs to:

• Establish univocal eligibility criteria in identifying eligible startups under the “Startup India” scheme.
• Inclusion of profitability threshold or higher annual turnover to canvas a wide range of startups under the “Startup India” scheme.

Author: Ananya Singh

Disclaimer:THE STATEMENTS HEREIN REPRESENT THE CURRENT OPINION AND BELIEFS OF THE AUTHOR ONLY AND NOT START-UP INDIA ASSOCIATION (SIA). UNDER NO CIRCUMSTANCES SHOULD ANYTHING IN THIS POST BE CONSTRUED AS INVESTMENT, LEGAL, TAX, REGULATORY, FINANCIAL, ACCOUNTING OR OTHER ADVICE.