Overview
Start-ups have become a crucial part of the Indian economy helping in the generation of employment & development of the economy. In the past five years, the start-up ecosystem in India has changed drastically. According to an estimate, Indian SaaS companies are expected to create half a million new jobs by 2030, the travel and hospitality industry with 52.3 million jobs by 2028, and the FoodTech industry with 9 million jobs by 2024.
Among cutting-edge technologies, Indian start-ups have also become hubs of innovation & creativity and a reliable solution for outsourcing by foreign entities which translates into an inflow of valuable foreign exchange. Likewise, there are fin-tech start-ups that are bridging the micro-credit gap in the country by offering digital solutions at low costs, to the thin-file customer segment.
Despite all of this, most start-ups struggle to raise funding in their early stages due to a lack of large sum capital investments for product development, market-entry, and commercialization. The primary reason is the reserved nature of banks or financial institutions to lend funds due to the risk involved of losing investment and the insufficiency of business assets to cover loan amounts for security purposes. On the other hand, investors like Angel investors & VC Firms are usually not interested until there is proof of an idea ready with them.
Realizing the immense scope for the growth of the Indian economy offered by the start-ups, the Government of India has come forward to support entrepreneurial efforts and create employment opportunities by bridging the gap between financial resources and through a series of schemes & policies. Thus, for start-ups & entrepreneurs who are looking to develop, expand or start new operations, these schemes provide support in the form of financial assistance through business grants, loans, and subsidies, and tax benefits.
How to get Govt funding for my start-up in India?
Any start-up that wishes to avail of the benefits offered under the Start-up India, needs to adhere to certain guidelines and meet the eligibility criteria to be eligible to avail of funding under them. Though most of the schemes are sector-agnostic, there are also certain schemes focusing on particular business industries.
Eligibility Criteria
- The business entity must be incorporated as a private limited company/Partnership firm/ or Limited Liability Partnership and a total period of ten years should not have elapsed from the date of its incorporation.
- The turnover of the business entity should not have exceeded one hundred crore rupees for any financial year since incorporation/ registration
- The business entity shall be working towards innovation, development, or improvement of products or processes or services, or if it is a scalable business model with a high potential of employment generation or wealth creation.
- Such business entity shall not have been formed as a result of reconstruction, merger, or splitting up from a business that is already in existence.
Funding Schemes Launched by the Government for Start-ups
With an intent to support young entrepreneurs and encourage entrepreneurship, the Govt of India has created a dedicated Ministry for helping start-ups. Thus, start-ups must leverage these funds and grow their businesses to compete globally. Though these schemes are undoubtedly a great way of raising funds for financially supporting their start-ups, it is also necessary for start-ups to do a little homework before making an application. However, by preparing ahead of time, start-ups could ensure that they have sufficient time to gather the documentation necessary and avoid any last-minute stress.
Here is the lowdown for several beneficial Govt schemes which could be helpful to bolster entrepreneurship in India and assist emerging startups financially-
Atal Innovation Mission
Atal Innovation Mission (AIM) is the Government of India’s flagship initiative launched in the year 2015 in the name of the former Prime Minister, Mr. Atal Bihari Vajpayee. The AIM scheme is undertaken by the Department of Science and Technology, under the Govt of India, and is responsible to allocate funds to applicant start-ups made by the Govt of India.
The primary objective of the scheme is to fostera culture of innovation and entrepreneurship across India through Self-Employment and Talent Utilization, through the creation of a common platform to facilitate interaction between Academia, Industries, and Government, and offer financial support to commercialize their ideas, to become successful entrepreneurs.
Additionally, the program aims to develop new schemes and policies for fostering innovation in different sectors of the economy, provide opportunities for collaboration between various stakeholders, and create a joint structure to administer the innovation & entrepreneurship ecosystem of the country.
Pradhan Mantri Mudra Yojana (PMMY)
Launched in the year 2015, the Pradhan Mantri Mudra Yojana (PMMY)is a startup funding scheme aimed at easing access to credit and supporting entrepreneurial ventures in the small & medium scale industries & start-ups operating in the non-farming and non-corporate sectors which have the potential to generate wealth & create employment opportunities for the Indian masses.
The scheme is administered by the Micro Units Development and Refinance Agency (MUDRA). The Pradhan Mantri Mudra Yojana (PMMY) or commonly referred to as the MUDRA scheme offers affordable finance enterprises working in all business sectors across manufacturing, trading, and service sector up to a maximum limit of Rs. 10 Lakhs to help them start, escalate and grow their business activities.
Under the aegis of the Mudra scheme, the start-ups have been classified into three major categories and the limit of financial assistance has been set up following their graduation and as a reference point to their next phase of graduation for any applicant start-up as-
- Shishu-Covering Loans up to the maximum value of Rs. Fifty Thousand
- Kishore – Covering loans up to the values above Rs. Fifty thousand- Rs. Five Lakhs
- Tarun- Covering loans up to the value above Rs. Five Lakh-Rs. Ten Lakh.
Thus, entrepreneurs between the ages of 18-65 years of age shall be eligible to make an application for financial assistance under the MUDRA scheme. The funds issued under this scheme come with an affordable interest rate and do not require any collateral or third-party security.
Start-up India Seed Fund Scheme (SISF)
Start-ups usually struggle to raise capital investments for the development of proof of concept or market entry. Thus, the Government of India introduced the Start-up India Seed Fund Scheme intending to provide financial assistance to startups for proof of concept, prototype development, product trials, market-entry, commercialization, etc. as part of its contribution to the development of India.
As per the Union Budget of 2022, the reserved fund for the Startup India Seed Fund initiative is Rs 283.5 crore, which is higher than the previous estimate of Rs. 100 crores for the previous financial year 21-22.
The scheme will help those promising early-stage start-ups to nurture & grow their business to such a level that they will be able to grow & nurture their business and survive in the tough competition in India. It will ensure that start-ups do not face any difficulty in setting up their businesses, thereby creating a positive & inclusive start-up ecosystem.
Venture Capital Assistance Scheme (VCA)
The venture capital assistance scheme is a scheme formed by the Small Farmer’s Agri-Business Consortium (SFAC) to assist in the form of the term loan to the qualifying projects of the farmers to meet their capital requirements for the implementation of the project and encourage the welfare of agri-entrepreneurs to develop their agri-business.
Under the VCA scheme, farmer entrepreneurs can avail of an interest-free loan to qualifying projects to meet the shortfall in the capital requirement for projects that have the potential of becoming successful ventures from the banks and financial institutions regulated by the RBI.
The maximum limit of the loans under the scheme will be up to Rs. 50 lakhs and the quantum of loan will be 26% (40% for hilly regions) of the promoter’s equity. The VCA scheme which also undertakes training and nurturing of agri-entrepreneurs is now well-recognized nationally as well as internationally as a pioneering financial assistance measure for small industries in India.
The CGTMSE Scheme
The Credit Guarantee Trust Fund for Micro and Small Enterprises (CGT-MSE) is one of the well-known start-up funding schemes in India. The Credit Guarantee Trust Fund for Micro and Small Enterprises (CGT-MSE) is a scheme launched with the cooperation of the Ministry of MSME and the Small Industries Development Bank of India (SIDBI) to provide financial support to micro-level businesses, small-scale businesses, and startups with no requirement of security to ensuring availability of finance from conventional lenders to new generation entrepreneurs.
Under this scheme, the eligible MSEs can obtain a maximum sum of Rs. One crore through the cooperation of the Ministry of MSMEs and Small Industries Development Bank of India (SIDBI). It is primarily meant for manufacturing units, and the loan could be either availed as a working capital loan or as a term loan.
Further, the scheme also offers assurances of loan repayments through guarantee covers to make good the loss so incurred by the lender up to 50-85% percent of the credit facility and to focus only on the viability of the business of the start-up while extending loan services to start-ups under the scheme.
The scheme could be availed by either any newly incorporated or any existing business entity engaged in either manufacturing or offering services of any kind. However, businesses that are engaged in the retail trade, agriculture institutions or training facilities, or self-help groups have been specifically ineligible to avail of the scheme.
Credit Linked Capital Subsidy Scheme (CLCS Scheme)
Considering the importance of technological advancement & upgradation for businesses in India, the Government of India launched the Credit Linked Capital Subsidy Scheme (CLCS) which aims to provide financial support to small industries and start-ups to help in the upgradation of technology and productivity, which will ultimately help them to become globally competitive. Thus, all small-scale business start-ups registered under the Directorate of Industries and wishing to upgrade their plant & machinery with advanced technologies are eligible to avail of this scheme.
The CLCS scheme aims to extend support to small-scale industries for the technological upgradation of their small-scale industries (such as khadi, village, and coir industrial units) by offering subsidies on the institutional credit facilities availed by them for the modernization of their production equipment and techniques. The eligible small-scale industries will be offered upfront cash support for purposes such as the purchase of new plant/equipment on a self-conducive basis or to hire services of any consultants to upgrade technology or improve the plant productivity, etc. up to the maximum value of Rs. 1 crore in maximum.
The SIPEIT Scheme
The Department of Electronics and Information Technology (DeiTY), under the Govt of India, launched the Support for International Patent Protection in E&IT (SIP-EIT) program to extend financial support to micro, small & medium enterprises (MSMEs) and tech-start-ups for international patent filing, which would otherwise be a hectic process in absence of financial support & knowledge. Any MSME or tech start-up may make an application for assistance at any stage of international patent filing by the applicant. Once the application is approved, the expenses for international filling will be reimbursed for a max limit of Rs. 15 lakhs per invention or 50% of the total charges incurred in filing and processing a patent application, whichever is lower.
SAMRIDH Scheme
The Startup Accelerators for Product Innovation, Development, and growth, commonly known as the SAMRIDH Scheme was launched by the Minister of Electronics Information and Technology (MeitY)on August 25, 2021, this year will be responsible for implementing this scheme. The primary aim of this scheme is to extend financial support to early-stage startups along with necessary guidance to ultimately help them to grow successfully.
The SAMRIDH Scheme has been designed to accelerate its target of around 300 start-ups by helping them to connect with customers and investors, to further help them to expand their business globally in the next three years. Along with this, every start-up will be offered funding up to Rs 40 lakh to the startups depending on their current valuation and growth stage.
ASPIRE
To improve the social & economic aspects of life in rural areas of India by encouraging entrepreneurship, the Ministry of Micro, Small, and Medium Enterprises (MSME) under the Govt. of India launched the ASPIRE scheme or (A Scheme for Promotion of Innovation, Rural Industries, and Entrepreneurship) in 2015 with a budget outlay of Rs. 62.5 crores from 2014 to 2016.
The scheme offered education & awareness to the entrepreneurs in rural areas entrepreneurs to innovate, start their businesses, and become employers rather than job seekers. Since the agro-business in India has huge scope and potential to survive and grow in the rural areas, the Ministry of Medium and Small Enterprises intends to promote entrepreneurship to ultimately alleviate poverty, increase employment opportunities and boost economic development at the grassroots level.
Dairy Entrepreneurship Development Scheme
The Dairy Entrepreneurship Development Scheme (DEDS) is a scheme designed & implemented by the Department of Animal Husbandry, Dairy & Fisheries, under the Govt of India to encourage self-employment opportunities in the dairy sector which will be implemented by the National Bank for Agriculture and Rural Development (NABARD).
Under this scheme, financial as well as operational assistance will be given to start-ups for activities such as enhancement of milk production, procurement, and preservation, transportation, processing, and marketing of milk, etc. through back-ended capital subsidies for bankable projects.
Stand-Up India Scheme for SC/ST/Women Entrepreneurs
The Stand-Up India Scheme for SC/ST/Women Entrepreneurs is a notable scheme launched by the Government of India to extend financial support to women and individuals from the SC and ST communities to set up their businesses in India in April 2016.Under the scheme, all bank branches must disburse a Stand-Up India Scheme loan to at least one woman, one individual from the SC community, and one from the ST community ranging anywhere between 10 lakhs to 1 crore. However, in cases where the applicant is a non-individual enterprise, it shall be mandatory that such individual SC/ST or the women entrepreneur must hold at least 51% of the total shareholding and controlling stakes.
Conclusion
Doing a business is never an easy task, as it needs to constantly tackle the challenges and grow over time to become successful. However, with a lack of guidance and funds, a start-up is likely to fail sooner or later. Thus, the Government of India has made continuous efforts to help businesses with the required necessary support through a series of schemes that encourage innovation through research & development activities and at the same time encourage budding entrepreneurs to build a strong start-up ecosystem and lead the vision of Atmanirbhar Bharat forward.
As a result, India has come out to be the third largest start-up ecosystem in the world and is expected to be heading towards the golden era of entrepreneurship where it would be in the same position as the USA or any other country in terms of the highest successful start-ups by the year 2030.
