Lok Sabha Question No. 2646 (UNSTARRED), answered on 2018-03-12
Subject: Foreign Investment under Startup India Programme
Ministry: COMMERCE AND INDUSTRY
Asked by: SANJAY SHAMRAO DHOTRE, RAHUL RAMESH SHEWALE, BHARTRUHARI MAHTAB

## GOVERNMENT OF INDIA MINISTRY OF COMMERCE & INDUSTRY DEPARTMENT OF INDUSTRIAL POLICY & PROMOTION

## LOK SABHA

UNSTARRED QUESTION NO. 2646. TO BE ANSWERED ON MONDAY, THE 12 TH  MARCH, 2018.

## FOREIGN INVESTMENT UNDER STARTUP INDIA PROGRAMME

## 2646.  SHRI SANJAY DHOTRE: SHRI RAHUL SHEWALE: SHRI BHARTRUHARI MAHTAB:

Will the Minister of COMMERCE AND INDUSTRY be pleased to state:

## वाणिज् यवव द्योग म त्री

- (a) the extent to which the Government has achieved the aims and objectives of launching 'Startup India' programme in the country;
- (b) whether the Government proposes to set up lenient regulatory framework to encourage foreign investments under the said programme;
- (c) if  so,  the  details  thereof  along  with  the  reaction  of  the  foreign  investors thereto;
- (d) the  funds  released  from  the  Fund  of  Funds  for  Startups  (FFS)  established under the Startup India initiative so far; and
- (e) the number of shortcomings noticed by the Government during implementation of the said programme since its inception and the corrective steps taken/proposed to be taken by the Government in this regard?

## ANSWER

वाणिज् यवव द्योग म त्रालयमेंराज् यम त्री(श्री सी.आर.चौधरी) THE MINISTER OF STATE IN THE MINISTRY OF COMMERCE & INDUSTRY (SHRI C.R. CHAUDHARY)

- (a): The  achievements  under  the  'Startup  India'  initiative  have  been provided at Annexure I.
- (b) & (c): The Government has undertaken number of steps to ease regulatory framework  to encourage  foreign investments. The  various steps undertaken  in  this  regard  are  placed  at  Annexure  II.  No  details regarding reactions of foreign investors are available.
- (d): Under  the  Fund  of  Funds  for  Startups  (FFS)  established  under  the Startup  India  initiative,  a  total  amount  of  Rs.  600  crore  has  been released to SIDBI. Further, Rs. 1050.7 crore has been committed by SIDBI to 24 Alternative Investment funds (AIFs) and Rs. 122.86 crore has been disbursed to 17 AIFs, who in turn have invested Rs. 517.92 crore in 109 Startups.
- (e): As a constant endeavour to facilitate the Startup ecosystem, Department of Industrial  Policy  and  Promotion  (DIPP)  had  extensive consultations with stakeholders wherein following  concerns  were highlighted -
1.  Startups  were  required  to  submit  a  Letter  of  Recommendation (LoR) from organizations such as incubators/ industry associations which often led to undue expenditure and delay for Startups. This discouraged  a  large  number  of  entities  from  applying  under  the programme.
2.  Taking into account the long gestation period required by Startups to get established, the period of 5 years as provided in the definition of Startups was too short. Further Startups in bio -technology sector require longer gestation period as compared to others.

In order to address the above concerns, following corrective measures have been taken:

1.  The requirement of Letter of Recommendation from an incubator/industry association has been done away with both for the purpose of recognition as well as for availing certificate of eligibility for obtaining tax benefits.
2.  In  order  to  further  promote  entrepreneurship  in  the  country,  the definition of a Startup has been modified on 23 rd May, 2017. It has been broadened to include scalability of business model along with a  high  potential  of  employment  generation  or  wealth  creation.  As per  the  new  definition,  an  entity  is  considered  as  a  Startup  up  to seven years from the date of its incorporation (from earlier 5 years). However, in the case of Startups in the Biotechnology sector, the period is up to ten years from the date of incorporation.

*****

## ANNEXURE- I

## ANNEXURE  REFERRED  TO  IN  REPLY  TO  PART  (a)  OF  THE  LOK  SABHA UNSTARRED QUESTION NO. 2646 FOR ANSWER ON 12.03.2018.

## Achievements under the Startup India initiative

## Simplification and Handholding

1.  Compliance Regime based on Self-Certification
2.  List of 36 industries in 'white' category has been published on CPCB's website.  CPCB  has  exempted  such  industries  from  all  the  applicable self-certifications under 3 Environment related Acts listed in the Startup India Action Plan
3.  Ministry of Skill Development and Entrepreneurship (MSDE) has issued advisory  to  states  to  allow  Startups  to  self-certify  compliance  with  the Apprenticeship Rules, 1992 of Apprenticeship Act, 1961
4.  Startups  have  been  allowed  to  self-certify  compliance  in  respect  of  6 Labour  laws;  26  states  have  confirmed  compliance  to  the  advisory issued on 12.01.2016 and new advisory issued on 6.4.2017 by Ministry of Labour and Employment (MoLE)
2.  Rolling out of Mobile App and Portal
6.  Startup  India  portal  has  been  developed  to  provide  access  to  the following:
7. o Startup  recognition  -  7837  Startups  have  been  recognised  till  6 th March 2018
8. o Advertising space for Startups
9. o Learning & development  module  -  over  1,97,000 registrations achieved
10.  The  portal  acts  as  a  one  stop  solution  for  all  queries  related  to  the Startup India initiative
11.  Startup  India  mobile  app  has  been  developed  to  provide  on  the  go services and information to users.
3.  Startup India Hub
13.  84,000+ queries have been handled by the Startup India Hub
14.  460+ Startups have been mentored for incubation and funding support
15.  30,000+ registrations have been achieved on the Hub as of February, 2018.
4.  Legal Support and Fast-tracking Patent Examination at Lower Costs
17.  423 facilitators for Patent and Design and 596 facilitators for Trademark applications have been empanelled to assist Startups in fling of patents and trademarks
18.  768 applications have received rebate of up to 80% on patent fees and have also received legal assistance
19.  Patent  filing  has  been  made  faster  for  Startups  and  accordingly  126 Startups have been facilitated
20.  Trademark facilitation has been extended to 858 Startups as of January, 2018
5.  Relaxed Norms of Public Procurement for Startups
22.  Relaxed  norms  for  public  procurement  for  micro,  small  and  other enterprises  have  been  provisioned  in  the  Procurement  Policy  by  the Ministry of Micro, Small and Medium Enterprise
23.  All  Central  Ministries /  Departments /Department of Public Enterprises/ Central  Public  Sector  Undertakings  have  been  authorised  to  relax conditions of prior experience and prior turnover with respect to MSEs in all public procurements subject to meeting quality and technical specifications
24.  Further, Rule 173(i) has been incorporated in GFR, 2017 which provides for  relaxation  of  conditions  of  prior  turnover  and  prior  experience  for Startups,  and
25.  Rule 170(i) of GFR 2017 has been amended on 25th July 2017 allowing all  Startups  as  recognized  by  DIPP  exemption  from  submission  of Earnest Money Deposit/Bid Security in public procurement tenders
6.  Faster Exit for Startups
27.  Insolvency and Bankruptcy Board has been constituted
28.  MCA  has  notified  the  relevant  sections  55  to  58  of  Insolvency  and Bankruptcy  Code,  2016  pertaining  to  the  Fast  Track  process  on 16.6.2017 and also notified that the process shall apply to Startup (other than the partnership firm) as defined by DIPP. For Startups, Insolvency Resolution process to be completed within 90 days as against 180 days for other entities.

## Funding Support and Incentives

7.  Providing Funding Support through Fund of Funds (FFS) with a Corpus of Rs. 10,000 crore
2.  Fund of Funds for Startups of Rs. 10,000 crore shall be released over two Finance Commission cycles, that is, by the year 2025
3.  Rs. 500 crore has been released to SIDBI in FY16 and Rs. 100 crore in FY 17
4.  Total  commitments  under  FFS  stand  at  Rs.  1050.7  crore  to  24 Alternative  Investment  Funds  (AIFs)  while  drawdown  by  AIFs  is  Rs. 122.86 crore
5.  109 Startups have received funding under FFS with catalysed investment of Rs. 517.92 crore
8.  Tax Exemption on Capital Gains
7.  Section 54 EE has been introduced under the Finance Act, 2016 which provides  for  exemption  of  capital  gain  arising  out  of  transfer  of  long term  capital  asset  (not  exceeding  Rs.  50  lakh  in    a  financial  year) invested in a fund notified by Central Government
8.  Section 54 GB of Income-tax Act, 1961 has been amended to provide exemption from  tax  on  capital  gains  arising  out  of  sale  of  residential house or a residential plot of land if the amount of net consideration is invested in equity shares of an eligible Startup for utilizing the same to purchase specified asset.
9.  Tax Exemption to Startups for 3 Years
10.  Provision has been made for Startups (Companies and LLPs) to avail income  tax  exemption  for  3  years  in  a  block  of  7  years,  if  they  are

incorporated between 1 st April 2016 and 31 st March 2019.

-  87 Startups have been approved for availing tax benefits

## 10.  Tax Exemption on Investments above Fair Market Value

##  Removal of Angel Tax

Tax  exemption  on  investment  above  Fair  Market  Value  has  been introduced on 14th June 2016.

## Industry-Academia Partnership and Incubation

## 11.  Launch of Atal Innovation Mission (AIM)

-  941 schools selected for  establishing  tinkering  labs  and  Rs.  12  Lakh each has been disbursed to 374 tinkering labs

## 12. Harnessing Private Sector Expertise for Incubator Setup

-  6  existing  Incubators have  been  sanctioned scale-up grant of Rs. 2.5 crore each by NITI Aayog
-  13 New Incubators approved for funding support by NITI Aayog

## 13.  Building Innovation Centres at National Institutes

-  15 Startup Centres have been approved for joint set up by Department of  Science  and  Technology  (DST)  and  Ministry  of  Human  Resource Development (MHRD)
-  Amount of Rs. 37.50 lakh (Rs. 3.75 lakh each for 10 Startup Centres) has been released as 1st instalment of the grant for 10 Startup Centres by MHRD
-  11  TBIs  (Technology  Business  Incubators)  have  been  approved  and Rs. 42 crore have been sanctioned and Rs. 17 crore disbursed to TBIs

## 14.  Setting  up  of  7  New  Research  Parks  modelled  on  the  Research  Park Setup at IIT Madras

-  IIT Kharagpur at a cost of Rs. 100 crore is under construction and Rs. 74.83 Cr. released to IIT Kharagpur
-  IIT Mumbai at a cost of Rs. 100 crore is under construction and Rs. 34 Cr. released to IIT Bombay
-  The Research Park at IIT Gandhinagar has been sanctioned by DST at a total cost of Rs. 90 crore and the Department has already disbursed instalment of Rs. 40 crore
-  5  more  Research  Parks  at  IIT  Kanpur,  IIT  Delhi,  IIT  Guwahati,  IIT Hyderabad and IISc to be supported by MHRD approved with a budget of Rs. 375 Crore for a period of 3 years.

## 15.  Promoting Startups in the Biotechnology Sectors

-  Department of Biotechnology (DBT) has sanctioned Rs. 1 crore under Biotech Equity fund to be given to each bio-incubator. The initiative has already helped 3 Bio-incubators that have been selected as recipients of the above mentioned Equity Fund.
-  30  bio-incubators  have  been  supported  through  funding  support  with Rs. 185 crore sanctioned and Rs. 119 crore disbursed. The impact has been multi-fold as a total of 290 start-ups have received benefits from these  bio-incubators  under  various  programmes  like  Biotechnology
- Ignition Grant, IIPME, Sparsh, Grand Challenges, BioNEST, etc.
-  In respect of Bengaluru-Boston Biotech Gateway to India: 4 entrepreneurs have joined and 1 is joining the Harvard University, USA to share ideas and receive mentorship

## 16.  Launching of Innovation Focused Programs for Students

- (a) Innovation Core program with an outreach to 10 lakh innovations from 5 lakh schools
-  4  regional  workshops  organized  &  revamped  MANAK  (Million  Minds Augmenting National Aspiration and Knowledge) approved
-  Over  1  lakh  INSPIRE  (Innovation  in  Science  Pursuit  for  Inspired Research ) Awardees competed at District & State Level
-  588 were selected to participate in the 6th National Level Exhibition and Project Competition, Delhi
-  Top 60 projects were showcased at the Annual Festival of Innovations in Rashtrapati Bhavan from 4th-10th March 2017
- (b) NIDHI  (National  Initiative  for  Developing  and  Harnessing  Innovation)Grand challenge program
-  19 new TBIs established
-  9 TBIs supported for Seed Support System (SSS)
-  10  NIDHI-PRAYAS  (Promoting  and  Accelerating  Young  and  Aspiring technology entrepreneurs) and 10 NIDHI-EIR (Entrepreneurs-inResidence) sanctioned
-  6  new  centres  of  excellence  (COEs)  have  been  recommended  to receive funds for COEs in FY2017-18
- (c) Uchhattar Avishkar Yojana (UAY)
-  Rs. 475 crore for 2016-18 has been earmarked for 3 years
-  Rs. 75 crore has been disbursed for research proposals from IITs under 6 domains
-  92 projects have been recommended for approval

## 17.  Other incentives :

-  External Commercial Borrowing (ECB) guidelines for Startups: Startups can borrow up to $3 million or equivalent  per financial  year,  either  in rupees, or any convertible foreign currency or a combination of both, for a minimum average maturity period of three years
-  Foreign venture capital  investors  (FVCI)  are  now  allowed  to  invest  in Startups  irrespective  of  any  sector  without  Reserve  Bank  of  India's approval
-  SEBI (Foreign Portfolio Investors) Regulations, 2014 have  been amended to permit FPIs to invest in unlisted Non-Convertible debentures and securitised debt instruments
-  The SEBI Board has approved five key amendments  to SEBI (Alternative Investment Funds) Regulations, 2012 with respect to 'Angel Funds':
- o The upper limit for number of angel investors in a scheme has been increased from forty nine to two hundred
- o Angel Funds will be allowed to invest in start-ups incorporated within five years, which was earlier 3 years.
- o The requirement of minimum investment amount by an Angel Fund
- in  any  venture  capital  undertaking  has  been  reduced  from  Rs.  50 lakh to Rs. 25 lakh.
- o The lock-in requirements of investment made by Angel Funds in a venture capital undertaking has been reduced from three years to one year.
- o Angel  Funds  are  allowed  to  invest  in  overseas  venture  capital undertakings upto 25% of their investible  corpus  in  line  with  other AIFs.

## ANNEXURE- II

## ANNEXURE REFERRED TO IN REPLY TO PARTS (b) & (c) OF THE LOK SABHA UNSTARRED QUESTION NO. 2646 FOR ANSWER ON 12.03.2018.

## Regulatory reforms undertaken to encourage foreign investments

1. Access to External Commercial Borrowing (ECB) for Startups

Separate  framework  for  ECB  for  Startups  was  notified  in  October  2016. Startups allowed to raise ECB up to USD 3 million.

2. Investment by foreign Venture Capital Investors (FVCI)

SEBI registered FVCI can invest in equity or equity linked instrument or debt instrument issued by an Indian 'Startup' irrespective of the sector in which the startup is engaged under automatic route.

3. Opening of foreign currency account

Indian Startup having an overseas subsidiary are allowed to open a foreign currency account with a bank outside India for the purpose of crediting to the account the foreign exchange earnings out of exports/sales made by the said startup or its overseas subsidiary.

******