Covid-19 Reliefs to Startups by Government

Introduction

The Covid-19 Pandemic has drastically impacted the businesses around the country. Businesses ranging from urban to rural was significantly affected due to the nation-wide lockdown. Several Covid Relief packages were formulated by the Government of India in order the protect the businesses in the country and financially assist them in these tough times. One of the major concerns for the government was protection of the start-up industries under the Start-up India Initiative which were still in the growing stage. Hence it was imminent that special protective measures are taken in order to safeguard the interest of the Start-up Ecosystem in the country.

The government launched several steps and initiatives in order the protect the Start-up from any financial or regulatory downfall on account of the pandemic. Additionally, there were several schemes formulated by the government in order to protect the start-up ecosystem which had received tremendous impetus since the initiation of Start-up India.

Hence it is pertinent to note that several efforts were taken by the government in order to protect the interests of the Start-up industries. These the steps taken by the government can be categorized into three major heads: Relief Initiatives, Economic Relief Measures and Regulatory Relief Measures. The following list provides for the steps taken under the respective heads by Government of India.

1. Relief Initiatives by the Government
   • The Department for Promotion of Industry and Internal Trade (DPIIT) has established a control center to monitor the challenges that industry workers face in the manufacture, delivery, and distribution of goods. DPIIT guarantees that the flow of commodities is not impeded as a result of the government’s lockdown limitations. The department has also supplied contact information in case of any problems.
   • The National Investment Promotion Agency established the Business Immunity Platform (BIP) to provide a 24/7 active platform for businesses to seek assistance. The platform contains a group of specialists who have been educated to assist firms in running trouble-free operations, particularly during Covid lockdown.
   • DPIIT had announced the United Against COVID-19-Innovation Challenge to seek creative COVID-19-fighting solutions. Applications were received for solutions to manage the COVID issue, such as logistical solutions, testing solutions, critical care equipment, big area sanitization, and several other essential factors associated to COVID-19.
   • The Small Industries Development Bank of India (“SIDBI”) has developed the Covid-19 Startup Assistance Scheme (CSAS) for startups, with the goal of assisting creative firms who have showed the ability to adjust to the economic impact of Covid-19 while also ensuring the safety and financial stability of its employees. SIDBI acknowledges the operational and financial problems that startups confront and has been working to give financial aid and stability to such firms through programs such as CSAS. Startups can acquire a loan of up to Rs 2 crore under this scheme.
   • An additional financial window for the healthcare sector has also been launched under a scheme called SIDBI Make in India Soft Loan Fund for Micro Small and Medium Enterprises (SMILE)) for financing the healthcare sector, including hospitals, nursing homes, clinics, and so on, for their requirements related to fighting the Corona Virus.
2. Economic Relief Measures by Government
   • Action COVID-19 Team (ACT) – ACT has set-up an INR 100 cr grant, created by India’s start-up community to give wings to ideas that could combat COVID-19 with immediate impact
   • The government of India has approved an economic package of around Rs. 3 lakh crore as a working capital facility for businesses. This includes MSMEs in particular (Micro, Small & Medium Enterprises).
   • SIDBI has recently announced a 5% interest rate reduction for MSME loans under the SIDBI Assistance to Facilitate Emergency Response against Covid-19 program (SAFE Scheme). These loans would be issued within 48 hours, with no collateral and minimal paperwork for MSMEs that manufacture products or provide services linked to the Covid-19 struggle.
   • Start-up enterprises permitted to access loans under External Commercial Borrowing Framework up to USD 3 million.(Oct, 2016)
   • A Securities and Exchange Board of India (SEBI) registered Foreign Venture Capital Investor (FVCI) may contribute up to 100%of the capital of an Indian company engaged in any activity mentioned in Schedule 6 of Notification No. FEMA 20/2000, including start-ups irrespective of the sector in which it is engaged, under the automatic route. (Aug, 2017)
   • An Indian start-up having an overseas subsidiary, may open a foreign currency account with a bank outside India for the purpose of crediting to it foreign exchange earnings out of exports/ sales made by the said entity and/ or the receivables, arising out of exports/ sales, of its overseas subsidiary. (June, 2016)
3. Regulatory Relief Measures
   1. Securities and Exchange Board of India (SEBI)
      • Lock in period for investments made by an Angel Fund reduced to 1 year from 3 years as amended by the SEBI (Alternative Investment Funds) (Amendment) Regulations,2016, w.e.f. 04-01-2017.
      • Angel Funds are allowed to invest in overseas venture capital undertakings upto 25% of their investible corpus in line with other AIFs as provided by the SEBI (Alternative Investment Funds) (Amendment) Regulations, 2016, w.e.f. 04-01-2017.
      • The upper limit for number of angel investors in a scheme is increased from forty nine to two hundred as amended by SEBI (Alternative Investment Funds) (Amendment) Regulations, 2016,w.e.f. 04-01-2017
      • The requirements of minimum investment amount by an Angel Fund in any venture capital undertaking is reduced from fifty lakhs to twenty five lakhs as amended by SEBI (Alternative Investment Funds) (Amendment) Regulations, 2016,w.e.f. 04-01-2017
   2. Ministry of Corporate Affairs
      • The financial statement, with respect to private company (if such private company is a start-up) may not include the cash flow statement.
      • A private company, which is considered as a start-up for a period of five years from the date of its incorporation, is also allowed to accept deposits from members without any restriction on the amount.
      • Exemption from procedural compliance (e.g. such as issue of an offer circular or creation of a deposit repayment reserve) for raising deposits from shareholders.
      • Amendment in Companies (Acceptance of Deposits) Rules, 2014: The Ministry of Corporate Affairs issued a notification on 07th September, 2020 whereby the maximum limit in respect of deposits to be accepted from members by a private company shall not apply to a start-up company for 10 years from the date of its incorporation, instead of 5 years.
   3. Ministry of Finance, Department of Revenue
      • Definition of eligible business as stated in Section 80-IAC aligned with Start-up’s definition.
      • Exemption under section 80-IAC of Income Tax Act: Exemption to eligible Start-up for any 3 consecutive assessment years out of 7 years (earlier 5 years) beginning from the year in which such eligible Start-up is incorporated.
      • Exemption from tax under the provisions of section 56(2)(viib) to Start-ups for issue of shares above fair market value on the basis of a self-declaration to the Central Board of Direct Taxes. The aggregate amount of paid-up share capital and share premium of the start-up after issue or proposed issue should not exceed Rs. 25 Crore.
   4. Ministry of Electronics and Information Technology
      • Removal of clause from Electronic Development Fund (EDF) operating guidelines stating that if a fund draws from Fund of Funds for Start-ups, then they cannot draw from EDF and vice versa.
   5. Ministry of Commerce and Industry, Department for Promotion of Industry and Internal Trade
      • Amendment in the definition of a Start-up: An entity shall be considered as a Start-up up to a period of ten years from the date of incorporation/ registration and turnover of the entity for any of the financial years since incorporation/ registration has not exceeded one hundred crore rupees.

Conclusion

It is pertinent to note that several steps were taken in order the safeguard the interest of the start-ups in India. These measures did provide a better operational platform to the start-ups which were potentially at a high risk during the time of the pandemic.