Suggestions to DPIIT for building a sustainable deep-tech start-up ecosystem in India

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Suggestions to DPIIT for building a sustainable deep-tech start-up ecosystem in India

Garima Prakash

@GarimaP

January 25, 2022

Public Policy

360

NASSCOM submitted suggestions to the Department for Promotion of Industry and Internal Trade (DPIIT) to build a sustainable deep-tech start-up ecosystem that focusses on growing innovation in India and for India. Our suggestions fell under 6 buckets, as highlighted below:

Talent

We need to ensure our start-ups are able to find and retain the best talent in an increasingly competitive environment. Currently the gap between demand and supply of Digital Talent in India is more than 8X.

1. Enable startups leverage ESOPs as a tool to attract and retain talent. Currently, only 500 startups which are registered under IMB can use ESOPs effectively as they can avail the tax deferment (which is not a tax subsidy) benefits. The tax deferment option should be made available to all registered under DPIIT.
2. Expand the talent pool with focus on building an entrepreneurial mindset - A deep tech Accelerator Program aimed at talent development in tier2/3 cities.

Innovation for India: Encouraging deep tech startups to innovate for India

While India saw record $32 Bn in 2021, most of the funding were for start-ups solving for enterprise / consumers for India and the world. This is not a surprise given that most of the start up investment is coming from international VCs. Startups focused on solving real grass root problems in India do not get funding priority by most global VCs. This needs to be addressed:

1. Create a special clause, in existing start-up funds like Fund-of-Funds of SIDBI, to reserve funds for start-ups which are innovating for India specific problems in areas like agri-tech, rural development etc. Increase the focus on utilization of funds.
2. Government should harmonise capital gain tax on sale of unlisted shares issued by start-ups recognised by DPIIT. Long Term Capital Gains (LTCG) arising from sale of unlisted shares are taxed @ 20% for resident investors and @ 10% for non-resident investors, subject to relief if any under the tax treaty.
3. Drive focused mentorship program for startups which are innovating for Bharat to help them build business models for India

Procurement reforms to help Start-ups scale in India

The Government of India has exempted as a policy, start-ups from the otherwise stringent selection criteria, such as, prior experience, prior turnover and Earnest Money Deposits, subject to meeting of quality & technical specifications. However, this needs to be implemented in spirit.

1. Regularly publish procurement data and insights of Govt of India’s procurement from start-ups.
2. Greater market opportunities for Indian start-ups can be created by funding start-ups focussed on solving challenges faced by the Government and its agencies or departments. Each year, an expert committee with representatives from Government and subject specialists can pose various challenges and select startups which provide solutions for an initial grant and granting of project by government for implementation of the solution.

Encourage more innovation and IP in deep tech through Start-ups

Current R&D spent in India is around 0.6% of GDP and policy issues surrounding IP is a key bottleneck to grow investments in R&D:

1. Backlog of applications to obtain an IP through the fast-track process that DPIIT should be expedited and disposed on a priority basis.
2. Time bound reimbursement for patent application fees, to the tune of 75%, at the time of application of the patent, would drive a culture of innovation and filing of more patents.
3. A domain wise SOP document to be made available in the government portal for the start-ups to refer and understand the criteria to match to file the patent.
4. Reimbursements for Patent Cooperation Treaty (PCT) approved patents including search report costs.
5. Superclusters: Structured stronger connect between industry and startups. Government to provide matching grants to industry-led consortiums which will work on projects in high impact, high value areas. One of the key outcomes of these projects would be the generation of Intellectual Property rights and their positive impact on India.

Grow global thought leadership for “World class from India”

There is a need to brand India as a global hub and go-to geography for innovation, especially in the Deep-tech space.

The Global Innovation Challenge

1. Develop a platform to connect global enterprises with Indian start-ups, wherein, the enterprises can pose challenges, Indian start-ups can complete for the best solution and the winner will receive Proof of Concept (POC)/ funding from the global enterprise for implementation of the solution.
2. This is a win-win situation for both global enterprises as well as Indian start-ups, as former need access to global talent for R&D initiatives, and latter seeks opportunities to work with global enterprises.

Goal: Create avenues for attracting foreign investments into Indian start-ups

Continue to grow foreign investments by Direct Overseas Listing

1. Operationalise the framework to allow direct overseas listing of Indian start-ups on foreign stock exchanges without the condition to simultaneously or subsequently list on Indian stock exchanges.
2. The Government’s intention to enable direct listing on overseas stock exchanges is clear by the amendment in the Companies Act. However, the implementation framework is yet to be notified, so that the amendment in Companies Act can be operationalised.
3. For implementation, there is a need to bring amendments to the Foreign Exchange Management Act, SEBI rules and Income Tax Act.

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Garima Prakash

Manager, Public Policy and Government Affairs

Reach out to me for all things policy about e-commerce, international trade, export controls, start-ups and fintech