Karnataka is lining up a slew of incentives for startups, including tax breaks, access to cash and regulatory free passes as it seeks to maintain Bengaluru’s edge as India’s startup destination of choice.
“Our startup policy focuses on innovation and entrepreneurship development. The government wants to further build on the edge Bengaluru has in fostering startups, and replicate the success in other districts too,” Karnataka IT Minister S.R.Patil told ET. He said the policy aims to mobilise Rs. 2,000 crore for startups through government intervention alone.
Karnataka has been a laggard in chalking out a robust policy for startups while others like Kerala, which released its policy in 2014, and Rajasthan have stolen a march in defining a framework of support for new ventures. Telangana is still in consultations to draft a new policy, while the central government is expected to announce a national startup policy in December.
The case for strong regulatory support has been growing more acute in the Indian startup sector, where an estimated 75% of the funded technology startups are moving operations outside India due to regulatory irritants, according to industry thinktank iSpirt.
By 2020, India is expected to house some 11,500 startups with Bengaluru being home to a dominant share.
The Karnataka startup policy will now define ventures which create technology products or services, are under four years and employ half of its total qualified workforce in Karnataka, as startups eligible for benefits.
These companies will receive reimbursements on service tax, VAT/CST, marketing incentives ( 30% of the costs including travel to international trade shows) and patent filing costs amongst others. The startup will cease to receive benefits on reaching a revenue threshold of Rs 50 crore.
The policy speaks of setting up a startup cell, which, with hotline and a portal will be a single-point of information related to investors, policies, regulations, patent matters and more.
The draft also said the government will also have a fund of funds to invest in venture capital funds. It said this would be in addition to sector-specific venture funds already in operation. In September, the state government had said that it will set up a Rs 100 crore fund to support startups
The central government has a Rs 10,000 crore fund announced in the budget last year, of which a fifth has been set aside by Small Industries Development Bank of India (SIDBI) to pick-up equity in startups.
The draft, created by the IT department, was cleared during a recent cabinet meeting chaired by Chief Minister Siddaramaiah. The policy stresses on creating 6 lakh direct and 12 lakh indirect new jobs in the sector. It wants to create 20,000 startups by 2020 with 6,000 of them producing technology products.
“A scheme like this needs to be widely publicized,” said Sanjay Anandram, partner at early-stage venture capital fund Seedfund.
The policy also aims to create a hub-and-spoke model to jumpstart entrepreneurship within colleges. Through “new-age incubation network” it will fund 50 academic institutions over a period of five years to set up incubators to encourage student projects. “The academic institutions will be connected through a common portal to facilitate exchange of ideas, and will act as anchors for other neighboring colleges,” V.Manjula, Principal Secretary, IT, said.
The government will fund the institutions for the first three years, granting Rs 3 lakh annually per project. Upon reaching milestones, the grant would be extended for another two years.
In addition, it is also setting up an Ignition Fund — on the lines of the Centre’s Rs 10,000 crore fund — to help early-stage ideas see light of day. It will assist entrepreneurs to meet costs of proof of concept validations and certification.
“With more start-ups coming, they will need inexpensive places that are well-equipped to meet their requirement. So, we will create incubation infrastructure in Bengaluru and outside on either a PPP basis or in association with the industry bodies. We are looking at both options,” Manjula said