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Startup India: A State By State Review

19/01/2016 11:57 AM IST | Updated 15/07/2016 8:25 AM IST
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By: Chanda Jain

According to a new World Bank report, India ranks 130 (out of 189 countries) in overall "ease of doing business". Opening a business in India is much harder than any other of its BRIC counterparts. Basic issues like getting credit, electricity, paying taxes and resolving insolvency continue to be sluggish and difficult in India.

In order to provide an impetus to the Indian entrepreneurial landscape, the government launched the "Startup India, Stand Up India" campaign on 16 January, 2016. The initiative aims to set up a network of startups and provide a new dimension to entrepreneurship in the country.

Meanwhile, Swaniti Initiative, a non-profit organisation working on data insights, took a closer look at state-level performance on startup friendly policies, examining different variables that are important for businesses. Here are some findings.

Registration of companies

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Maharashtra accounts for the largest share of new companies registered, followed closely by Delhi. These two states along with West Bengal, Karnataka and Tamil Nadu account for all 65.9% of all registered companies have been opened. On the other hand, the Northeastern states of Arunachal, Manipur, Nagaland and Mizoram together house less than 1% of total registered companies.

By improving their regulatory framework, the top-performing states have been able to provide a relatively conducive environment for entrepreneurial activities. While Delhi and Maharashtra have benefited due to their status as the political, financial and commercial hubs of the nation, Karnataka became the first state to establish a startup policy with a timeframe of five years from 2015-2020. The policy entails setting up incubators in postgraduate colleges, collaboration between R&D institutions and industry, and technical business incubators in higher learning institutions. Similarly, Tamil Nadu has set up a state-level warehouse at Tidel Park in its mission to set aside dedicated areas for startups to function.

Being able to create a macroeconomic environment that is inviting for business is considered one of the most important factors for startups according to the World Bank.

Opening a business

States aspiring to promote new businesses have been able to designate a centralised state body which acts as a single point of contact for all business startup licensing. This body is empowered through an explicit mandate to carry out functions. Andhra Pradesh, Madhya Pradesh, Maharashtra, Punjab, Telangana and Uttar Pradesh have also gone one step ahead and placed the business registration process online to simplify the process of applying for and obtaining registration certificates for entrepreneurs. An assessment study conducted by Department of Industrial Policy and Promotion (DIPP) ranks the top five states on multiple parameters on ease of setting up a business:

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The ease of opening businesses consistently figures as one of the most important variables across all major research.

Connectivity

Connecting talent with the required infrastructure helps improve the overall knowledge economy and creates new jobs. As internet connectivity and penetration improves, it plays a major role in boosting job generation and enabling newcomers to start successful business ventures. The top five service areas in terms of internet subscriptions (wired as well as wireless) per 100 population are Delhi, Punjab, Himachal Pradesh, Kerala and Tamil Nadu. Maharashtra and Karnataka follow closely with a greater internet subscriber base than the other states.

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Access to Human Capital

Investing in human capital is an essential activity for successful enterprises. The southern states of Maharashtra, Karnataka, Andhra Pradesh and Kerala have a greater number of colleges per lakh population. Several of these institutions also host incubation centres under the Technology Incubation and Development of Entrepreneurs (TIDE) scheme implemented by the Department of Electronics and Information Technology (DeitY). Out of 27 TIDE centres, nearly 50% have been set up in these states. The ready availability of a skilled workforce establishes a strong correlation with the successful launch of startup missions.

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Access to Credit

The Union Cabinet recently approved the setting up of two credit guarantee funds to facilitate loans to micro and small entrepreneurs through MUDRA (Micro Units Development Refinance Agency) and the Stand Up India scheme. The corpus of credit guarantee fund for MUDRA will be Rs 3000 crore and for Stand Up India Rs 5,000 crore with loans repayable up to seven years. Banks will also be required to focus on SC/ST and women entrepreneurs in a bid to make the ecosystem more inclusive.

As of January 15, 2016, banks have disbursed Rs 81,004 crore under the Pradhan Mantri Mudra Yojana, benefiting more than two crore micro and small entrepreneurs, with Karnataka, Maharashtra, Tamil Nadu, Bihar and West Bengal accounting for 43% of loans made available through the scheme.

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Conclusion

The data clearly reveals that the southern states of Karnataka, Tamil Nadu, Maharashtra, Andhra Pradesh and Kerala have been able to create an entrepreneur-friendly system. West Bengal and Rajasthan have also set up structures to nurture startups by launching incubation centres and funding support. The "Startup India, Stand Up India" scheme can play a big role in extending start-up culture across the country by promoting the required blend of suitable policies, access to finance, incubation and an inclusive ecosystem.

Author bio: Chanda is an Analyst at Swaniti Initiative. She is currently working on providing knowledge insights on key government programs to Parliamentarians. She holds a Business degree from Shaheed Sukhdev College of Business Studies, Delhi University.

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