START-UP PLANS OF THE GOVERNMENT

A research paper submitted in total fulfillment of the course Managerial

Economics for obtaining the degree B.B.A., LL.B. (Hons.) during the academic
session: 2019-20

Submitted by:

Pragya, B.B.A., LL.B. (Hons.)

Roll: 2029

Submitted to:

Dr. Shivani Mohan

Assistant Professor of Economics.

September, 2019

Chanakya National Law University,

Nyaya Nagar, Mithapur, Patna-800001, Bihar

 DECLARATION

I Pragya, hereby declare that, the project work entitled, ‘Start-Up Plans of the Government’
submitted to CNLU, Patna is record of an original work done by me under the guidance of,
Faculty Member, CNLU, Patna.

Pragya

B.B.A., LL.B. (Hons.)

Roll No. – 2029

3rd Semester

I
 ACKNOWLEDGEMENTS

First and foremost, I would like to thanks my Faculty of Managerial Economics, Dr. Shivani
Mohan, for giving the opportunity to work on this project named – ‘Start-up Plans of the
Government’. Her guidance and support has been instrumental while making my project on this
topic.

I would like to all authors, writers and columnists whose ideas and works have been made use in
my Project. My heartfelt gratitude also goes to all staff and administration of CNLU for the
infrastructure in the form of library that was a great source of help in completion of this Project.

I also thank my friends for their precious inputs which have been very useful in the completion
of this Project. I would also like to thank my parents, my seniors, dear colleagues, and friends in
the University, who have helped me with ideas about this work.

I hope you will appreciate my true work which is indeed a hard work and a result of my true
research and work.

Pragya

B.B.A. LL.B. (Hons.)

Roll No. – 2029

3rd Semester

II
 TABLE OF CONTENT

DECLARATION………………………...………………………………………………………. I
ACKNOWLEDGMENT………………………………………………………………………… II

1. INTRODUCTION ................................................................................................................... 1

1.1. OBJECTIVE OF THIS SCHEME ................................................................................... 2

1.2. SUCCESS OF THE INITIATIVE ................................................................................... 3

2. RESEARCH METHODOLOGY ............................................................................................ 5

3. LACK OF FINANCE .............................................................................................................. 7

4. LACK OF INNOVATIVE BUSINESS MODEL ................................................................... 9

5. INDIA IS A SATURATED MARKET ................................................................................. 11

6. CONCLUSION AND SUGGESTIONS ............................................................................... 13

 STARTUP PLANS OF THE GOVERNMENT

1. INTRODUCTION

In terms of population, India is the 2nd largest country and the biggest problem which is faced by
India is poverty and the main reason behind poverty is unemployment. According to Indian
government, India had 31 million jobless people as of September 2018.1 Due to increase in
population and scarcity of resources available, unemployment in India is increasing at an
alarming rate. Even the young graduates are facing severe issues of unemployment in the country
as there is no job opportunities provided by the government neither there are scope of setting of
their own start up business because of various reason such as funding, land, infrastructure, loans
etc. According to the latest Asia Pacific Human Development Report, India is facing severe
scarcity of job market and growth in unemployment among young graduates and it will last for
next 35 years. Also, around 1 million people enter the workforce in India every month, according
to Labor Ministry data.

To eradicate this scarcity of job market, ours Honorable Prime Minister, Dr. Narendra Modi, on
15th august 2015 announced “Start Up India Stand Up India” initiative at Red Fort and on 16th
jan 2016, it was officially flagged by Finance Minister Arun Jaitley. PM Narendra Modi
envisioned the aim of the initiative to transform India into a start-up nation, “a country of job
creators instead of job seekers.”

In this campaign he main of the Govt. is to provide maximum help and support for the new
emerging businesses and ideas. The support will be in the form of finance, technology, economic
,social as well as environment. As it is known fact that when someone starts a new enterprise or
tries to get into entrepreneurship, he face many problems like finance, land permission,
environmental clearance, foreign investment proposals, family support etc. It is one of the much
needed initiative plan of Govt. of India. This initiative focuses on filling the gap in the economy
and its development and has an objective to fire the entrepreneurial blood at the bottom level. It
has brought lots of positivity and confidence among the entrepreneurs of India. According to PM
Narendra Modi, the start-ups, its technology and innovation is exciting and effective instruments
for India’s transformation. An idea can be converted into a start-up. Even sometimes the crisis

1
"Unemployment Statistics". Ministry of labour and employment. www.labour.gov.in. accessed on 31/08/19.
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 STARTUP PLANS OF THE GOVERNMENT

becomes the opportunity and it gives birth to the start-ups. The main objective of the govt. is to
reduce the load on the start-ups hence allowing them to concentrate fully on their business and
keeping the low cost of adherence.

1.1. OBJECTIVE OF THIS SCHEME

Start-up India scheme, launched by PM Narendra Modi, is to reduce the burdens on the new
entrepreneurs by facilitating them with various schemes. The objective behind this scheme is:

1. SIMPLIFICATION OF WORK

Establishment of Start-up hubs where the works related incorporation, registration, grievance
handling etc are done. For registration, an online portal is provided by the Govt. to facilitate
registration from anywhere at any time. The patent acquisition and registration is now fast for
start-ups.

According to the Insolvency and Bankruptcy Bill, 2015 facilitates fast winding up of the startups.
A new startup can wind-up itself within 90 days of the incorporation.2

2. FINANCE SUPPORT

The Govt. is providing various financial support to the entrepreneurs in order to motivate the
start-ups. Some of the steps taken by the Govt. are as follows:

The government has set up a corpus of Rs.10,000 crores for 4 years (Rs.2500 crore each year).
From such fund, the government invests in various startups.

Special funds are provided, investment in which leads to exemption from the income tax on the
Capital Gain. Income tax exemption is available for the startups for the first 3 years after the
incorporation.

Under this initiative, the government has already launched the I-MADE program, to help Indian
entrepreneurs build 10 lakh (1 million) mobile app start-ups, and the MUDRA Bank's scheme

2
“Startup India- A Govt. initiative”, available at https://www.toppr.com/guides/business-management-and-
entrepreneurship/government-initiatives-for-business-development/startup-india-scheme/. Accessed on 31/08/19.

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 STARTUP PLANS OF THE GOVERNMENT

(Pradhan Mantri Mudra Yojana), an initiative which aims to provide micro-finance, low-interest
rate loans to entrepreneurs from low socioeconomic backgrounds.3 Initial capital of ₹20,000
crore (equivalent to ₹210 billion or US$3.0 billion in 2018) has been allocated for this scheme.

The Indian government has introduced over 50+ startup schemes in past few years. Each startup
scheme is missioned towards boosting the Indian startup ecosystem. Close to 4,400
technology startups exist in India and the number is expected to reach over 12,000 by 2020. India
is also at third place behind US and Britain in terms of the number of startups. Furthermore, in
line with its global counterparts, India has its own billion dollar club to boast about. This
includes startups like Flipkart, Snapdeal, Ola, InMobi, Hike, MuSigma, Paytm, Zomato,
and Quikr. With the next $100 Mn funding raise, fintech startup MobiKwik too looks to join the
unicorn club.4

3. HUGE NETWORKING OPPORTUNITIES5

Networking Opportunities means the opportunity to meet with various startup stakeholders at a
particular place and time. The government provides this opportunity by conducting 2 startups
fests annually (both at domestic as well as the international level).

Startup India scheme also provides Intellectual Property awareness workshop and awareness.

1.2. SUCCESS OF THE INITIATIVE

This scheme has encouraged entrepreneurs to come up with their startup plans. India ranks
3rd globally in the startup industry with 4200 registered startups. The government has set up new
incubators across the country on the public-private partnership mode. As per the NITI Aayog
site, 17 established incubation centers have been shortlisted for scale-up support. The Startup
India hub has been operational from April 1st 2016 for any queries about recognition as a
‘startup’, incubators, funding or avail tax benefits. The hub has handled about 25,000 queries
from startups through telephone, email and Twitter. The ‘Fund of Funds’ of 10,000 crore rupees
for startups by SIDBI (Small Industries Development Bank of India) has been a major attraction

3
"Report: PM scheme generates 1.68 crore jobs in 2 years", The Hindu Business Line, 08/07/18.
4
https://inc42.com/buzz/startup-scheme-indian-government-startups/. Accessed on 31/08/19.
5
See Supra note 2.
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 STARTUP PLANS OF THE GOVERNMENT

for ventures. The fund will invest in SEBI-registered VC funds which, in turn, will invest in
startups. Nasscom has pushed to remove funding and taxation constraints related to of startups
through lowering of long-term capital gains tax rates for domestic investors to 10%, on a par
with non-residents. The government has made exit easier for startup who are about to quit their
businesses. The Insolvency and Bankruptcy Code, 2016 says that startup can close up within 90
days of filling in the application. The GST Bill has greatly improved the growth rate of
startups in the country. The startups now are scaling up as there are no irregular issues to deal
with.6

There are certain instances also where the Start-up India scheme has failed which are discussed
in the subsequent chapters.

6
https://www.groupdiscussionideas.com/startup-india-standup-india-success-or-failure/. Accessed on 31/08/19.
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 STARTUP PLANS OF THE GOVERNMENT

2. RESEARCH METHODOLOGY

This study is mainly based on secondary data. The data are collected from various sources
including books, journals, articles, research studies, various websites and newspaper articles. The
study main focuses on the descriptive study of the Startup India initiative taken by the Govt. of
India to encourage young entrepreneurs and their innovative ideas. The research is mainly based
on the various issues and problems in the proper implementation of the initiative. Some of the
main problems are studied in a described manner in the paper. The study is descriptive and
conceptual in nature.

RESEARCH OBJECTIVES

The researcher has the following objectives:

1. To understand in details the facilities provided under Startup India initiative.

2. The implementation of the initiative is effective or not.
3. The objective of the Govt. behind this initiative is fulfilled or not.
4. Reason behind the failure of the scheme.
5. Whether the vision of India being a Job creator will be achieved or not.

AREA OF LIMITATION

Area of limitations – Every study has own limitation due to the limited time, lack of sufficient
financial sources and limited area of survey/study of the subject matter.

SOURCES OF DATA

The researcher has used both primary as well as secondary sources of data.

MODE OF CITATION

The researcher follows the Blue Book mode of citation.

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 STARTUP PLANS OF THE GOVERNMENT

HYPOTHESES

The researcher has created the following hypotheses on the reasons behind the improper
implementation and failure of the Startup India initiative:

1. Lack of finance.
2. Lack of Innovative Business Model.
3. India is a saturated market.

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 STARTUP PLANS OF THE GOVERNMENT

3. LACK OF FINANCE

The Start up India Stand up India initiative is taken in order to facilitate the entrepreneurs to
establish their own startups by providing them funding, financial support, international funds etc.
Department for Promotion of Industry and Internal Trade (DPIIT) has recognized 19,351
successful startups across the country as on 24.06.2019.7 Zomato, Flipkart, Ola, Olx are some of
them. The govt. so far has given various funds in order to facilitate the young entrepreneur to
form their own startup.

Government of India has established Fund of Funds for Startups (FFS) with corpus of Rs. 10,000
crore, to meet the funding needs of startups. DPIIT is the monitoring agency and Small
Industries Development Bank of India (SIDBI) is the operating agency for FFS. The total corpus
of Rs. 10,000 crore is envisaged to be provided over the 14th and 15th Finance Commission
cycles based on progress of the scheme and availability of funds. SIDBI has committed Rs
3123.20 crore to 49 SEBI registered Alternative Investment Funds (AIFs). These funds have
raised a corpus fund of INR 27,478 crore. INR 483.46 crore have been drawn from Fund of
Funds for Startups. Further, the AIFs have invested a total of Rs. 1,625.73 crore into 247
startups.8

According to the Ministry of Commerce and Industry, the investment made and formulated in
various states and union territories by AIFs under the Fund of Funds for Startups is an amount of
1625.73 crores.

Still there are number of cases of startups failure and there are multiple reasons behind it.
Various entrepreneurs have shared their views on the reasons behind the failure.

According to Prashant Aggrawal, founder of Horses Stable, The Indian startup ecosystem has its
share of success. In 2018, 8 Indian startups become unicorns with a valuation of over $1 billion
yet a survey by the Institute for Business Value and Oxford Economics reveals that 90per cent of
startups fails within the first 5 years. Flipkart $1 billion payouts to its founder are inspirational

7
Press Information Bureau, Government of India, Ministry of Commerce and Industry, 28/06/19. Available at
https://pib.gov.in/newsite/PrintRelease.aspx?relid=190914, accessed on 31/08/19.
8
See Supra note 7.
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 STARTUP PLANS OF THE GOVERNMENT

and will lead thousands of young Indians to pursue their startup dream. But for every Flipkart,
there are 50 startups that fail. There are a number of reasons why Indian startups fail the most
important of which is a lack of funding. Startups fail to attract funds for a number of reasons. If
an investor sees value in a startup he or she is more likely to invest, however, investors often fail
to see value in Indian startups and don't fund them. The problem of lack of funds faced by Indian
startups is often a result of their founders’ inability to articulate their business model to the right
audience.9

According to TV Mohandas Pai, Chairman of Manipal Global Education, by 2025, there will be
100,000 active startups in India employing about 320,000 people. According to him, Centre's
Startup India policy coupled with policies of various states, IT initiatives, the success of Flipkart
and others, have enthused more people. All startups have bright future those who work well will
succeed. He believes that most startups may not scale up or get a market as they are all started by
first time entrepreneurs due to lack of experience, lack of knowledge as to how to properly
execute the policies and how to manage and also because of financial fundings.

After the thorough study, the researcher here declares that the first hypothesis that lack of
funding is one of the reason behind the failure of the Startup India initiative has been proved
although the Govt. is alone not responsible for this. It is the skill and ability of the entrepreneur
to attract as much as financial funding and assistance he can attract for his Startup. The same has
been stated by Prashant Aggrawal and TV Mohandas Pai. There are various reasons behind the
failure of any Startup and one cannot completely blame the govt. The other reasons are discussed
in the subsequent chapters.

9
Why Indian Start-ups are facing a Lack of Investors/Business Entreprenuers, available at
https://www.entrepreneur.com/article/334044, accessed on 31/08/19.

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4. LACK OF INNOVATIVE BUSINESS MODEL

If we look at the 2016 NASSCOM report, it states that the reason behind the failure of startups is
none other than lack of innovation which has led some startups to shut their shop within a few
years of their inception.10

In 2016, it was reported that between January and August, 29 startup shutdowns in India took
place. Startups shutting their shops in 2017 (from January to June) have a no different story to
tell. Until June 2017, the year has seen the total of 8 startups closing down their operations and
winding up some part of their business. The Stayzilla shutdown has been the most talked about
affair.11

According to Sunil Gupta, Founder and Director of ExportersIndia.com, The failed startups can
place the onus on being repetitive either by lifting successful ideas of the West or just being
clones of already successful ventures. These plagiarised ideas fail to hit off and tank as fast as
they promised to shoot up. They fail to impress as they don’t make it to the product market fit as
the wary customers fluctuate between innovation and trusted brand names.12

Another report by IBM Institute for Business Value and Oxford Economics also highlights high
lights lack of innovation as the main cause of the startup failure. The Report states that more than
90% of startups fail within the first five years due lack of innovation. 77% of venture capitalists
surveyed believe that many Indian startups lack pioneering innovation based on new
technologies or unique business models.13

According to Raja Chakraborty, Co-founder of Streamlyn, A business needs to innovate in order

to be relevant. Taking into account the growth of my own company, the success of Streamlyn
can be contributed to the advancement in the technology behind its proprietary products namely
BidsXchange (demand side platform) and StreamX (supply side platform). The products are

10
India Startup Ecosystem Maturing 2019, Available at https://www.nasscom.in/knowledge-
center/publications/indian-start-ecosystem-maturing-2016. accessed on 19/08/19.
11
M. Caliendo,S. Kunn,F. Wiebner and J. Hogenacker, “Subsidized start-ups out of unmployment :A comparison of
regular business start-ups, IZA Discussion Papers”, 8817, 2015.
12
“Lack of Innovation leads to Startups Shutdown”, available at https://www.indianweb2.com/2017/07/19/indian-
startups-failing-due-to-lack-of-innovation/. Accessed on 19/08/19.
13
2018 IBM Annual Report, available at https://www.ibm.com/annualreport/. Accessed on 19/08/19.
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powered by artificial intelligence and machine learning, proving to be an aid for both advertisers
and publishers get the best return on investment out of their campaigns. Hence, there is a
substantial need to keep up with the demands of the modern era.14

The startup is synonymous with innovation because either the business model or the product
itself is innovative. But there are times some entrepreneurs lack imagination and others too
scared to try out different things. They either try an emulate another successful startup or get
immersed in day-to-day activities and forget to think. Sometimes they are driven by the need to
be successful and sometimes by lack of time. This is what creates the competitive advantage,
what allows them to stay ahead of the competition, ahead of emulators.

According to Gopikrishna Lingala, Co-founder of Leanspoon, the reason behind a startup’s

success is Innovation. Ignoring innovation for growth, or vice-versa, is the first sign of decline,”
says Lingala.15

According to Prashant Aggrawal, founder of Horses Stable, To be successful a startup must be

innovative. Unfortunately, Indian startups are less innovative than startups elsewhere. Many
Indian startups don’t have an original business idea that is disruptive and by which consumers
will be provided with better service; in reality, most Indian startups are copying what has been
successful elsewhere. Consider that both founders of Flipkart worked with Amazon earlier and,
like Amazon in its early years, started their company selling books online. Because Indian
entrepreneurs aren’t willing to be as disruptive as those overseas, they're less likely to have a
business that adds value and as a result, attract funding.16

The second hypothesis that lack of innovative ideas is the reason behind the shutting down of
any startup has been proved.

14
See supra note 12.
15
ibid.
16
See supra note 9.
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5. INDIA IS A SATURATED MARKET

India is the second most populous country in the world and a major economy; however, most
startups serve the fraction of Indians who live in urban India. The majority of Indians who live in
rural areas and small towns remain untouched by most startups. Too many startups serving too
few consumers are saturating the Indian market. In India, less than 20 online retailers are enough
to serve the current market, but there are too many online retailers chasing too few consumers.
Similarly, there are too many startups serving other crowded industries as well. The increasingly
crowded startup ecosystem means there aren’t enough funds to go around.

There are thousands of startups in India some of which will go on to become successful in the
years to come. Every startup with an innovative idea and talented leaders can be successful
anywhere in the world. For the moment, however, the challenges mentioned are not allowing
Indian startups to reach their fullest potential. While funding is the crux of why more startups in
India aren’t succeeding, there are innovative startups that bring together investors and founders
and allow startups to make case for funding. During such sessions, founders articulate their
company’s vision and how it adds value, if investors believe a startup is viable, they may agree
to invest the sum requested by the startup. In return, investors own a share in the startup.

According to a 2014 study, there were between 12 – 25 million online stores running worldwide.
And over the past couple of years, this number has grown. This definitely makes e-commerce a
pretty competitive and saturated industry. So, it is likely that the niche market you are targeting
as a prospective startup already has plenty of established competitors.17

The situation may seem like a dead-end to most startups, but on the flipside, a saturated market
also indicates a huge demand, which means opportunities. And if you can identify these
opportunities, then you can certainly gain a good market share. Let’s take an example here to
clarify things a bit.

17
‘Challenges and Opportunities for Indian Startups’, available at
https://www.financialexpress.com/industry/challenges-and-opportunities-for-indian-start-ups-key-points-to-
note/524728/. Accessed on 20/08/19.
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 STARTUP PLANS OF THE GOVERNMENT

E-commerce may have already become a saturated sector, but the industry is so dynamic and is
going through so many reforms at present that new players can easily secure a place for
themselves by capitalizing on the ongoing trends.

The hottest ongoing trend in the e-commerce arena is m-commerce or mobile commerce. People
are increasingly using mobile devices for online shopping. In 2015, about 40% e-commerce
transactions happened on mobile devices. In Japan and South Korea, more than half of online
purchases are done on smart-phones and tablets. By focusing on mobile shoppers, e-commerce
startups can establish a good standing for themselves in a competitive market.18

Enhancing the shopping experience is another area for new players to work upon to capture a
market share. Customers are getting used to advanced technology and expect a seamless
shopping experience from online retailers. They want more options to pay for their order and
expect more automation in the process. By working on these areas, you can certainly attract
customers to your online store.

The 3rd hypothesis that one of the reasons behind the failure of the startups is that India is a
saturated market and hence the competition is very high. This is true but if viewed from the
positive side, it is an opportunity for those who have entirely new and innovative idea for their
business. So, this hypothesis has been partially proved as discussed above.

18
‘Startups in Saturated Market’, available at https://blog.rankwatch.com/how-e-commerce-startups-can-penetrate-
a-saturated-market/, accessed on 20/08/19.
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6. CONCLUSION AND SUGGESTIONS

At present day, start ups are growing rapidly. Both male and females are getting into it. Even
females are coming with more ideas and they are taking the risk to sustain their credibility.
Indian start-ups attempt to build the start up environment with important education, talent,
innovation and incubators with correspondence to funding agencies. Now the govt is also
supporting the Start-ups. According to Nasscom, India ranks third in global start-up ecosystem.
More than 65% growth is seen in the year 2015.Start-up is an opportunity for an entrepreneur to
educate and inspire others while some are thinking of how to do and what to do. Although,
entrepreneurs are facing problems like lack of funds, lack of innovative ideas or it is because
India is a saturated market. Although these problems exist, there are 19,351 successful startups
across India till the present date according to the Govt. of India. These show that even though
there exist a lot of problems but still entrepreneurs are rising like a sun. They have the
determination to setup and divert their energy to plan, support and execute their dreams and
contributing to the growth of the economy. This new initiative of start-ups pledge rapid
approvals for starting the business, easier exits, tax rebates and faster registration for the patents.
This initiative holds the potential of creating the jobs when the manufacturing sector is having a
downfall. For any new idea to become successful venture it requires appropriate support and
mentoring.

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 BIBLIOGRAPHY

BOOKS REFERRED

 H.L. Ahuja, Managerial Economics, 2017.

 Yogesh Maheshwari, Managerial Economics, 2014.
 Vijaya Kumar Ivaturi, Meena Ganesh, Alok Mittal, The Manual for Indian Start-ups:
Tools to Start and Scale-up Your New Venture, 2017
 Team Prabhat Prakashan, Government Schemes, Missions, Campaigns and Programmes
In India, 2018.
 Alejandro Cremades, The Art of Startup Fundraising: Pitching Investors, Negotiating the
Deal, and Everything Else Entrepreneurs Need to Know, 2018.

ARTICLES REFERRED

 M. Caliendo,S. Kunn,F. Wiebner and J. Hogenacker, “Subsidized start-ups out of

unmployment :A comparison of regular business start-ups, IZA Discussion Papers”,2015.
 M. Goyal and J. Prakash, “Women entrepreneurship in India-problems and prospects”,
Zenith International Journal of Multidisciplinary Research,1(5), 2011.

WEBSITES VISITED

 www.labour.gov.in.
 https://inc42.com/buzz/startup-scheme-indian-government-startups/.
 https://www.groupdiscussionideas.com/startup-india-standup-india-success-or-failure/.
 https://pib.gov.in/newsite/PrintRelease.aspx?relid=190914
 https://www.indianweb2.com/2017/07/19/indian-startups-failing-due-to-lack-of-
innovation/.
 https://www.ibm.com/annualreport/.
 https://www.financialexpress.com/industry/challenges-and-opportunities-for-indian-start-
ups-key-points-to-note/524728/.