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Day 13 – Q 4.What are the challenges facing the start up ecosystem in India? Discuss. In this regard, critically assess the efficacy of measures adopted by the government under the Start-up India scheme.

4. What are the challenges facing the start up ecosystem in India? Discuss. In this regard, critically assess the efficacy of measures adopted by the government under the Start-up India scheme. 

भारत में स्टार्ट अप इकोसिस्टम के सामने क्या चुनौतियाँ हैं? चर्चा करें। इस संबंध में, स्टार्टअप इंडिया योजना के तहत सरकार द्वारा अपनाए गए उपायों की प्रभावकारिता का समालोचनात्मक आकलन करें।


Start-up India is a flagship initiative of the Government of India, intended to build a strong ecosystem that is conducive for the growth of start-up businesses, to drive sustainable economic growth and generate large scale employment opportunities. The Government through this initiative aims to empower Start-ups to grow through innovation and design into a country of job creators instead of job seekers.


Challenges faced by Start up ecosystem in India

India has a unique set of problems due to multicultural and multilingual regions that need innovations to find solutions to health, education, infrastructure, sanitation and for population at the ‘bottom-of-the-pyramid’ space.

  • Financial resources: Availability of finance is critical for the startups and is always a problem to get sufficient amounts.
  • Supporting Infrastructure: There are a number of support mechanisms that play a significant role in the lifecycle of startups which include incubators, science and technology parks, business development centers etc. Lack of access to such support mechanisms increases the risk of failure.
  • Regulations: Starting and exiting a business requires a number of permissions from government agencies. Although there is a perceptible change, it is still a challenge to register a company and exiting it.Regulations pertaining to labor laws, intellectual property rights, dispute resolution etc. are rigorous in India and as per World Bank report, “World Bank Ease of Doing Business”, India ranks 137 out of 189 economies.
  • A tax break of three years has been given in the scheme. Anyone who has business sense knows that only a few of start-ups will be profitable in the first three years and so this handful can avail themselves of the tax break.
  • Bureaucratic hurdles and corruption: for example earlier Angel tax (now it has been removed) falls under corruption and bureaucratic inefficiencies as it takes the focus of entrepreneurs away from building a product or service to responding to tax notices and filing appeals, something that start-ups can clearly do without.
  • Revenue generation: Several startups fail due to poor revenue generation as the business grows. As the operations increase, expenses grow with reduced revenues forcing startups to concentrate on the funding aspect, thus, diluting the focus on the fundamentals of business.

Initiatives by Government:

There are numerous government initiatives to assist start-ups,

  • Start Up India initiative: This initiative provides three-year tax and compliance breaks intended for cutting government regulations and red tapism.
  • MUDRA Yojna: Through this scheme, start-ups get loans from the banks to set up, grow and stabilize their businesses.
  • SETU (Self-Employment and Talent Utilization) Fund: Government has allotted Rs 1,000 Cr in order to create opportunities for self-employment and new jobs mainly in technology-driven domains.
  • E-Biz Portal: Government launched e-biz portal, India’s first government to business portal that integrates 14 regulatory permissions and licenses at one source to enable faster clearances and improve the ease of doing business in India.
  • Royalty Tax: Indian government has reduced the royalty tax paid by businesses and start-up firms from 25per cent to 10 per cent
  • Credit Guarantee Fund Trust: launched by the Government of India (GoI) to make available collateral-free credit to the micro and small enterprise sector. Both the existing and the new enterprises are eligible to be covered under the scheme.
  • Fund of Funds for Start-ups (FFS): 10,000 Rs corpus fund established in line with the Start-up India action plan under Small Industries Development Bank of India (SIDBI) for extending support to Start-ups.
  • Tax Sops: Tax exemption on Capital gain tax, Removal of Angel tax, Tax exemption for 3 years and Tax exemption in investment above Fair Market Value.
  • Self-certification compliance.


  • Schemes’ definition of start-ups (driven by technology or intellectual property) prevents others from availing the incentives.
  • Tax exemption is subjected to inter-ministerial board.
  • The labour laws can be abused as they wouldn’t be inspected for the next 3 years.
  • Some provisions seem vague calling attention towards more clarity.


The current economic scenario in India is on expansion mode. The Indian government’s liberal policies like Make in India, Digital India, MUDRA etc .shows enthusiasm of centre to increase the GDP rate of growth from grass root levels. With government going full hog on developing entrepreneurs, it could arrest brain drain. It is not out of place to mention that some of these startups would become unicorns and may become world renowned businesses by expanding into other developing and underdeveloped countries.

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