Start Up Policy Chainges by Harish of GT

The Startup policy needs a rethink and reboot to make it more effective and impact startups in a material way. The government should explore why the scheme is not making a direct impact on the lives of startups the way it was anticipated.
Startups, especially in the technology sector, are a key differentiator for India’s economic growth and prosperity. The ambitious Startup India policy was expected to make life easy for startups and help further encourage the young population to become entrepreneurs.

But the response to the policy, which was announced in January, has been lukewarm. As per news reports, about 400 applications were received by the interministerial board, of which 189 have been considered, 148 have been asked to submit proper documents and 10 rejected. Thirty have been asked to give additional information and only one has been approved. Clearly this is less than a drop in the ocean. Startups appear to find the process bureaucratic and cumbersome or do not see the benefit of registering for approval and benefits under the policy.

The policy needs to be tweaked in two areas to make it broad-based and impact the largest number of startups. Doing this will also improve the ease of doing business.

One of the biggest hurdles in India is the plethora of laws that companies have to deal with and even more daunting is the number of these laws with potential for inspections and harassment.
The startup policy, which is applicable to companies with revenue of up to Rs 25 crore and that are no more than five years old, permits self-certification and no inspection under nine laws in the area of labour and environment.
This is a real boon for companies as it enables them to focus on business and growth till they have achieved some scale and have the resources to comply. This benefit is available only to approved startups.

There are two changes required to broadbase this. The number of laws needs to be expanded to include other acts like the Factories Act, Shops and Establishments and Employees’ State Insurance Act.

This policy of self-certification under these laws should be applicable to all startups. The definition of a startup could be any business so long as it is incorporated as a company or LLP within the previous five years, has a turnover of less than Rs 25 crore and not promoted by any existing business group. There will obviously be a few bad apples who may misuse such a policy and the government needs to find other ways to deal with them.

There is a need to enable companies to close down when the business model fails or cash dries. While businesses and business models fail the entrepreneurs typically will want to try newer and different businesses.

We also know most successful global
entrepreneurs of today succeeded in their second or third attempt. Today closing a company requires getting noobjection certificates from multiple government departments confirming no dues and that typically takes 18 to 36 months of running around.

To resolve this the startup policy or the bankruptcy law could be modified so that all startups may be permitted to close down within 45-60 days through a simple process with a singlewindow approach. They need not necessarily declare the company or the founders bankrupt.

Some of the other measures like tax breaks and funding support (which is really not material because a company which is in startup stage is unlikely to make profits) can be restricted to those who come through the present process.

These suggestions, along with implementing the other elements of what has been promised so far, will enable India to achieve the goals the PM talked about when the policy was announced. more