Missing links in PM's start-up action plan

Govt has defined a startup as a company registered not more than five years ago and whose annual revenue does not exceed Rs 25 cr

Experts are looking at the fineprint of what was unveiled by Prime Minister Narendra Modi on Saturday as the euphoria around the startup action plan settles down.

Some are pointing to missing links and seeking clarity from the government. Others believe the plan could promote startups but it is not enough to stop them from moving to other countries conducive for entrepreneurs.

Consider this. The government plans to set up an inter-ministerial board to validate the innovation quotient of a startup when it applies for any tax benefit. But venture capitalists and startups are confused how any innovation will be assessed.

"It is just an announcement. We still have to see who will be the members, how are they going to classify startups, and how are they going to decide if it is an innovation. If the committee does not have people from the sector, convincing them will be difficult," said a senior partner of an international venture capital fund.

The government has defined a startup as a company registered not more than five years ago and whose annual revenue does not exceed Rs 25 crore.

An official in the commerce ministry told Business Standard, "Provisions in the action plan like the inter-ministerial board go against the government's objectives of easing the regulatory burden. It would have been better to set fix criteria for issues like innovation."

Also, easy exit in the event of business failure, another measure announced in the action plan, exists as part of the bankruptcy bill tabled in the Lok Sabha in December. Saurabh Shrivastava, chairman, Indian Angel Network, said the government could add features for startups. "The provision of winding down a company in 90 days is a great help. The government might offer startups different provisions in this regard," he added.

Even as the spirit of the policy is encouraging, it might not be enough to stop companies from moving to countries like Singapore, said some in the industry. "The government should do something about the law that requires a company to list in India before it can list on foreign shores. A company based out of Singapore can directly list on the Nasdaq," said Sandeep Aggarwal, founder and chief executive officer, Droom.

Angel investors and venture capitalists said though the move to provide a tax break for three years was good, it would only benefit those few startups that were making profits.

"It is a great idea, but most companies in their initial years do not make profits. The government should make the capital gains tax the same for listed as well as unlisted companies, that will solve a lot of problems," said Shrivastava of Indian Angel Network.

Experts are betting big on the clause that talks of capital gains. "The plan provides for funding of the startup ecosystem through investment of capital gains in a fund of funds recognised by the government," said Amarjeet Singh, partner, tax, KPMG in India.

A CLOSER LOOK

• The government has defined a startup as a company registered not more than five years ago and whose annual revenue does not exceed Rs 25 crore
   
• Venture capitalists and startups are confused how any innovation will be assessed
   
• Some believe the plan could promote startups but it is not enough to stop them from moving to other countries conducive for entrepreneurs
   
• Angel investors and venture capitalists said the move to provide a tax break for three years would only benefit those few startups that were making profits