Everything You Need to Know About Startups for Government Exams

About the Guest Author: Dr. Nikhil Agarwal manages the largest incubator of India at IIT Kanpur. He is the CEO of the Artificial Intelligence Centre for Excellence at IIT Kanpur. In addition, he is the Senior Senator of the World Business Angel Forum (WBAF) for India.

What are Startups?

Startups are young businesses that wish to deliver something significant to the society that has not yet been delivered by the conventional industries. Innovation, technology, and an unconventional approach lie at the base of any startup. The industries do not change, however, the delivery and the nature of products change. We can understand this with the help of an example. A conventional restaurant chain might open its branches in order to expand its customer base. A startup, on the other hand, might provide similar ready-to-eat meal at your doorstep at a lower cost. Startups can be as simple as food-delivery drones to as complex as anti-drone systems. When the valuation of a startup reaches $1 billion, it is called as a Unicorn. According to the Economic Survey 2021-22, more than 61,400 startups have been recognized by the DPIIT (Department for Promotion of Industry and Internal Trade).

Startups and Their Contribution to the Economy

As per the Global Startup Ecosystem Report 2020 (GSER 2020), the value created by startups globally is nearly $3 trillion. This figure is comparable to the GDP of a G7 country. At the same time, India is also making strides as far as the startup economy is concerned. The Economic Survey 2021-22 reveals that India has become the 3rd largest startup ecosystem in world, only behind the US and China. The survey also reveals that 555 districts has at least 1 new startup. In 2021, 44 startups had turned unicorns. As of January 2022, India has 83 unicorns that were cumulatively valued at $277.77 billion. There has been an increase in space-tech startups from 11 in 2019 to 47 in 2021. This is an encouraging sign since it shows that the startups are penetrating those markets that were traditionally reserved for the government sector or for the big companies.

As the global economy expands and the technology spreads its wings, we can expect more contribution from the startups with respect to economy and job creation.

Government Schemes for Startups

Government has taken measures to promote the startup ecosystem in the country. Some of the Government Schemes that you will find useful for your competitive examinations have been mentioned below:

1) Startup India:

Under the Startup India scheme, eligible companies are recognized as Startups by DPIIT (Department for Promotion of Industry and Internal Trade). Once a company is recognized as a startup, it can avail various benefits such as self-certification compliance of 6 Labour Laws and 3 Environmental Laws, Tax Exemptions, Ease of Winding Up of Company, Easier Public Procurement Norms, etc.

Some of the eligibility criteria are:

• Age: From the date of incorporation, company should not have crossed 10 years of existence and operations
• Company Type: Company must be incorporated as a Private Limited Company, a Registered Partnership Firm, or a Limited Liability Partnership
• Annual Turnover must not exceed INR 100 crore for any financial year, since the year of incorporation
• The entity should be an original entity and must not have been formed by splitting up or reconstruction of an existing business
• The company must develop or improve a product/process/service and must have scalability with potential for wealth creating and employment generation

2) Startup India Seed Fund Scheme

The Startup India Seed Fund Scheme aims at providing financial assistance to startups for proof of concept, prototype development, product trials, market entry, and commercialization. It was announced at Prarambh: Startup India International Summit. The scheme will help the startups to raise their level so that they can raise funding from angel investors or venture capitalists, or obtain loans from commercial banks.

Who are the stakeholders?

• DPIIT (Department for Promotion of Industry and Internal Trade): It was act as the Nodal Department
• EAC (Experts Advisory Committee): It will consist of Government Representatives and Industry Experts
• Incubators: These are Govt. assisted/Not-Govt. assisted Incubators that have been operational for at least 2-3 years
• Startups: These are DPIIT-recognized startups that have been incorporated less than 2 years ago

Some of the salient features of the scheme are given below:

• Almost 3,600 entrepreneurs will receive support through 300 incubators
• Incubators will be eligible for a grant of up to INR 5 Crore
• Startups will receive an investment of up to INR 50 Lakhs for market entry, commercialization, or scaling up through convertible debentures or debt-linked instruments.

3) ASPIRE Scheme

ASPIRE stands for A Scheme for Promotion of Innovation, Rural Industries and Entrepreneurship. The scheme was launched the Ministry of Micro, Small & Medium Enterprises. It aims to set up technology centers and incubation centers that will help in promoting entrepreneurship, startups, and innovation in agro-industry. The scheme intends to provide financial support for setting up of Livelihood Business Incubators (LBI) or Technology Business Incubator (TBI).

Following are the objectives of the scheme:

• Job creation and unemployment reduction
• Entrepreneurship promotion
• Economic development at the district level
• Cater to unmet social needs

Some Technical Definitions

Some of the technical definitions have been given below. These definitions will help the student understand various ways in which a company is incorporated:

• Sole Proprietorship: It involves just one individual who owns and operates the enterprise
• General Partnership: Partners manage the company and are responsible for debts and obligations
• Limited Partnership: Limited partners serve as investors only. They have no control over the company and they do not have the same liabilities as in the case of General Partnership
• Corporation: It is a separate and independent legal entity. It is subject to more regulations and tax requirements
• Limited Liability Company (LLC): The concept of LLC has gained traction in the recent years. It is a mix of partnership and corporation. LLCs provide business owners with the liability protection that is enjoyed by the corporations