India - Incentives For Start-Ups In Gujarat.

Introduction

With nearly 82,000 start-ups and 107 unicorns, India is a significant player in the start-up ecosystem, putting it on the third spot globally.[1] In recognition of the value such start-ups add to a nation’s economy in terms of capital formation and employment opportunities, the Government of India (“GoI”) has launched multiple schemes such as Fund of Funds for Start-ups[2], Start-up India Seed Fund Scheme[3 ], etc. The GoI has committed funds to the extent of INR 7,385 crore for the start-ups at various stages under these schemes.

Following the footsteps of the GoI, certain state governments have also come up with incentives for start-ups. Gujarat has also taken various initiatives to incentivise start-ups. The state currently hosts 5,712 Department for Promotion if Industry and Internal Trade (“DPIIT”) recognised startups and has captured one-third of the total market in the pharmaceutical sector. In terms of export-oriented companies[4], Gujarat is ranked 2^nd among other states. Even in IT sector, Gujarat holds the 2^nd position in terms of total outstanding investments in IT/ITes sector.[5 ]

Schemes/ Initiatives by the GoG

In addition to the benefits provided by the GoI, the Government of Gujarat (“GoG”) has come up with several schemes of its own to give impetus to the start-ups and to further the entrepreneurial spirit within the state. Key incentives provided by the GoG are:

Scheme for assistance for Start-ups/ innovation[6]

In view of the strategy under Gujarat Industrial Policy, 2020 (“GIP”), the GoG introduced a five-year scheme of assistance for start-ups/ innovation, effective from August 7, 2020. Under this scheme, any individual/group of individuals having an innovative idea/concept and which is also recommended by an approved Nodal institution will be eligible as a start-up. However, such start-ups which are already availing benefits under any other ‘start-up scheme’, except Student Start-up and Innovation Policy of GoG, will not be eligible for incentives under the said scheme. Set out below are some of the key features of the scheme:

Assistance up to INR 30 lakh as seed support towards cost of raw materials/ consumables/ hardware & software/ professional services, other equipment/ tools required for prototype/ product/ process development, market research, testing & trials and marketing/ publicity assistance;

Monthly sustenance allowance of INR 20,000/- to each start-up for 1 (one) year and monthly sustenance allowance of INR 25,000/- in case of a start-up having at least 1 woman co-founder;

Assistance up to INR 1 lakh per start-up for obtaining training in soft skills;

Assistance up to INR 10 lakh for start-ups generating significant impact on the society;

Assistance up to INR 3 lakh to participate in national/internationally recognised acceleration program;

A separate fund under Gujarat Venture Finance Limited is set up for INR 50 lakh -INR 3 crore mid-level pre-series A funding; and

Interest subsidy of 1% p.a. on term loans, maximum up to 9%, to applicants under the provisions of scheme for assistance to MSMEs.

Gujarat Electronics Policy[7]

On October 28, 2022, the GoG introduced a policy for companies engaged in the manufacturing of electronic products, intermediates and electronic services with an aim to promote faster and inclusive growth in electronics system design and manufacturing and promote research and development. With this move, the GoG is eying to boost semiconductor manufacturing and other electronic items. The policy is effective from October, 2022 and is valid until March, 2028. Key features of the policy include:

Capital Expenditure Support for Eligible Units:
- For units having eligible capital expenditure of less than INR 1000 crore: capital support of 20% subject to a ceiling of INR 200 crore; and
- For units having eligible capital expenditure of more than INR 1000 crore: capital support of 20% subject to a ceiling of INR 200 crore for the eligible capital expenditure incurred up to INR 1000 crore and capital support of 15% of the incremental eligible capital expenditure above INR 1,000 crore.

Logistics Support:
- Support of up to 25% freight charges for imports subject to a ceiling of INR 5 crore per year for 5 years; and
- One-time support by way of reimbursement of 50% of the cost incurred by the units for relocation of manufacturing operations from outside India to Gujarat, maximum up to INR 5 crore.

Other benefits include:
- Power tariff support of INR 1/unit for 5 years;
- One-time reimbursement of 100% stamp duty and registration fee paid to GoG for lease/sale/transfer of land; and
- Interest assistance of 7% or the actual interest paid, whichever is lower, subject to a ceiling of INR 10 crore per year on the term loan for 5 years.

IT or ITeS Policy[8]

In addition to the benefits available specifically for start-ups, the GoG has also introduced policy for companies in the IT/ITeS sector with an aim to provide a robust infrastructure for the IT/ ITeS sector and to provide high skilled resources in this fast-changing technological era. Start-ups in the IT/ITeS sector are also able to enjoy the benefits provided under this policy. The said policy is made effective from February, 2022 and is valid until March 2027. Key features of the policy include:

Capital and Operational Expenditure Support
- For units having gross fixed capital investment of less than INR 250 crore: One-time capital expenditure support of 25% subject to a ceiling of INR 50 crore and operational expenditure support of 15% subject to ceiling of INR 20 crore; and
- For units having gross fixed capital investment of more than INR 250 crore or generating 2000 direct employment: One-time capital expenditure support of 25% subject to a ceiling of INR 200 crore and operational expenditure support of 15% subject to a ceiling of INR 40 crore.

Other benefits include:
- One- time support for every new and unique job created: Re-imbursement of 50% of one month’s CTC up to INR 50,000/- per male employee and INR 60,000/- per female employee;
- Interest subsidy at 7% p.a. on the term loans or actual interest paid, whichever is less, subject to a ceiling of INR 1 crore;
- Reimbursement of EPF contributions made by the start-up to the extent of: 100%, in case of female employees and 75%, in case of male employees.
- Exemption on the entire electricity duty payable to the GoG;
- Monthly rental support of 50% for the first two years and 25% for next three years on per seat basis for units starting their operations in co-working IT office space under government facilitated model; and
- Power tariff support of INR 1/unit for 5 years for facilitating cloud ecosystem.

In addition to the specific schemes and policies set out above, the GoG also provides a range of incentives for MSMEs operating in the state, which can also be availed by the start-ups.

Outlook for the state

The steps taken by the GoG to assist and promote the start-up culture have provided a conducive ecosystem for them in the state and this is evident from the ever-increasing number of start-ups and incubators in Gujarat. The table below provides a comparison between an increase in the number of DPIIT-recognised start-ups in Gujarat and an average number of start-ups of all other states over the years.

Source: Search (startupindia.gov.in)

Owing to its start-up friendly policies, Gujarat was also ranked as the Best Performer by the Start-up Ranking Framework for the year 2020 and 2021, respectively. Gujarat currently houses more than 180 incubators or innovation centres that stand testimony to its regulatory support and awareness. In terms of reforms, Gujarat also provides area specific assistance such as market accessibility, support to incubators, funding support, etc. Gujarat has performed better in comparison to other states and the same is represented below in the percentile score, which is the relative performance of Gujarat in each reform area as compared to other participating states/UTs.

Comparative analysis between Gujarat and other states

Source: Gujarat (startupindia.gov.in)

Given the introduction of progressive policies/ schemes by Gujarat and the GoG’s pro-business approach, the state is well placed to provide platform for Indian start-ups to incubate and expand nationally and internationally.