The Department for Promotion of Industry and Internal Trade (Ministry of Commerce & Industry) recently announced the results of the 2nd edition of Ranking of States on Support to Startup Ecosystems. Alongside this, it also unveiled the Ease of Doing Business Rankings of the States-2019 based on the State Business Reform Action Plan.
Background and Objectives
The authorities initiated these rankings with a goal of enhancing competitiveness, promoting mutual learning and motivating States and Union Territories to make concerted efforts in the direction of strengthening the startup ecosystem.
Framework of Rankings
The 2019 Ranking Framework revolved around seven significant reform areas encompassing thirty action points. These ranged from institutional support, incubation support, venture funding support, seed funding support to easing compliances, relaxation in public procurement norms, and awareness and outreach.
Participants
The recent round of ranking saw participation from 22 States and 3 Union Territories. To ensure consistency and standardization in the ranking process, these participants were split into two groups, namely Category X and Category Y. The former included all states excluding those in North East India and Delhi, while the latter comprised all Union Territories except Delhi and all states in North East India excluding Assam.
Results
The states and UTs were classified into various categories – Best Performers, Top Performers, Leaders, Aspiring Leaders, and Emerging Startup Ecosystems. Gujarat emerged as the Best Performer in Category X, followed by Karnataka and Kerala, while Uttar Pradesh and Tamil Nadu secured the lowest positions. In Category Y, Andaman and Nicobar Islands secured the top spot, with Sikkim at the bottom.
Government Initiatives for Startups
The Indian government has introduced several initiatives to aid startups like the ‘Fund of Funds for Startups’ with a corpus of INR 10,000 crore under the Startup India program. Notable policy reforms include a change in eligibility criteria for a company to issue shares with differential voting rights now requiring distributable profits for three years.
Startup Ecosystem Support Measures
The government has established Start-up Cells for redressal of grievances and addressing tax-related matters under the Income-tax Act, 1961. The National Startup Advisory Council advises the Center on improving the startup ecosystem. Other initiatives include Aatmanirbhar Bharat ARISE-Atal New India Challenge and AIM-iCREST to enhance research, innovation, and competitiveness of Indian startups.
State and Central Government Funding Support
More than 1300 startups have received seed funding from state governments. Further, ten states have created Venture Funds or Fund of funds, and 218 startups have been provided venture funding support.
Seed Funding and Venture Funds
Seed funding refers to the initial capital used when starting a business while venture funds, which typically follow seed funding, are equity financing for rapidly-growing private companies provided by venture capitalists.
Way forward
This initiative is crucial for capacity-building of states and establishing a robust startup ecosystem as imagined by the Startup India Initiative of 2016. To achieve the goal of becoming a 5 trillion dollar economy by 2024, the central and state governments need to ease access to funding for startups, simplify regulations, and invest heavily in Research & Development and upcoming technologies.