Economic Development: February 2023 UPSC Current Affairs | Current Affairs & Hindu Analysis: Daily, Weekly & Monthly PDF Download

New Tax Regime

Why in News?

Recently, during the Union Budget 2023-24 speech, Union Finance Minister announced a change in income tax slabs and rebate limits under the new income tax regime.

• According to the proposed 2023 Finance Bill, startups that offer their shares to foreign investors may be subject to paying the "angel tax," which was previously only applicable to investments raised by Indian residents.

What are the Proposed Changes?

1. Tax Rebate Limit Raised:

• The enhancement of this limit to ₹7 lakhs from ₹ 5 lakhs indicates that the person whose income is less than ₹7 lakhs need not invest anything to claim exemptions and the entire income would be tax-free irrespective of the quantum of investment made by such an individual.
• This will result in giving more consumption power to the middle-class income group as they could spend the entire amount of income without bothering too much about investment schemes to take the benefit of exemptions.

2. Changes in Income Tax slabs

• It was proposed to change the tax structure in the new regime by reducing the number of slabs to five from six income categories and increasing the tax exemption limit to ₹3 lakh.
• Tax assessors will still be able to choose from the prior regime.
• Salaried and Pensioners: The new system's standard deduction for taxable income exceeding Rs15.5 lakhs is ₹52,500.

3. For Pensioners

• The Finance Minister announced extending the benefit of the standard deduction to the new tax regime.
• Each salaried person with an income of ₹15.5 lakh or more will benefit by ₹52,500.
• Maximum Tax Along with Surcharge:
  • It was proposed to reduce the highest surcharge rate from 37% to 25% in the new tax regime. This would result in the reduction of the maximum tax rate to 39%.
  • The highest tax rate in India is 42.74%. This is among the highest in the world.
  • Tax rates have been reduced under the new tax regime and the maximum marginal rate drops from 42.74% to 39%.

4. Finance Bill, 2023:

• The Finance Bill, 2023 was also unveiled which has proposed to amend Section 56(2) VII B of the Income Tax Act.
• The provision states that when an unlisted company, such as start-ups receive equity investment for the issue of shares exceeding their face value, it will be considered income for the start-up and be subject to income tax under the heading "Income from other Sources".
• Section 56(2) VII B of the Income Tax Act, colloquially known as the ‘angel tax’ was first introduced in 2012 to deter the generation and use of unaccounted money through the subscription of shares of a closely held company at a value that is higher than the fair market value of the firm’s shares.
• It was also proposed to include foreign investors also, meaning that when a start-up raises funding from a foreign investor, that too will now be counted as income and be taxable.

State of Rural India

Why in News?

Rural India is already in distress, yet the Union Budget 2023-24 did not offer much to revive the economic growth, instead it made severe cuts in the allocations to subsidy schemes, with some crucial schemes receiving marginal rises in allocations.

How has the Union Budget Fared for Rural India?

• Agriculture and Allied Activities: There is marginal rise in the allocation of agriculture and allied activities, including PM KISAN, from Rs 1.36 trillion crore in FY23 to Rs 1.44 trillion crore in FY24 (an increase of 5.8 %).
• Agriculture Research and Development: On agriculture R&D, the allocation is only Rs 9,504 crore, although it is higher than Rs 8,658 crore in FY23. This is only 0.4 % of agri gross value added, while other countries spend 1-2 % of agri Gross Domestic Product (GDP).
• Agri Subsidy:
  • The Food Subsidy saw a 31% cut in this budget. It now has an allocation of Rs 197,350 crore, from Rs 287,194 crore last year.
  • Fertilizer subsidy saw a 22% cut from last year and now has an allocation of Rs 175,099 crore.
  • Subsidies on Liquified Petroleum Gas (LPG) for the poor have been reduced by 75% to Rs 2,257 crore now.
  • The budget for the procurement of cotton by Cotton Corporation under Price Support Scheme has been reduced to Rs 1 lakh from Rs 782 crore in 2022-23.

What is the State of Rural Economy?

About:

• As per the Economic Survey 2022-23, 65% of India’s population lives in the rural areas and 47% of the population is dependent on agriculture for livelihood.
• Contrary to the common perception about predominance of agriculture in the rural economy, about two thirds of rural income is now generated in nonagricultural activities.
• According to the Economic Survey, the agriculture sector has grown at an average annual growth rate of 4.6% in the past six years. However, agriculture and rural incomes are under stress for several reasons.

Economic Situation

• Before Pandemic:
  • According to the National Statistical Office’ Situation Assessment Survey (SAS) of agricultural households for the 2018-19, showed the unprecedented crisis in India’s economy driven by declining demand and supply disruptions.
  • Even before 2014, there were signs of distress following a sharp slowdown in the economy and a rise in input costs driven by rising wages, faulty implementation of India’s fertilizer-subsidy reforms and higher fuel prices.
  • The back-to-back drought in 2014 and 2015 added to the misery.
  • But before the agricultural sector could revive in 2016, demonetization caused disruptions that left many farmers unable to sell.
  • Since then, the economy has experienced a sharp slowdown, followed by the covid pandemic.
• After Pandemic:
  • Per capita incomes in real terms in 2021-2022 are still below the 2018-2019 levels, and the overall growth between 2016-2017 and 2021-2022 is at its lowest level of 3.7% for any five-year period in the last four decades.

What are the Challenges to the Rural Economy?

• Inflation:
  • The purchasing power of the rural population has declined due to higher Inflation in rural areas. Real rural wage growth has been negative due to high inflation.
  • Weak rural demand has been a concern for fast-moving consumer goods and other consumer durables, although we see a few green shoots now.
• Agriculture Sector Issues:
  • Agriculture is the primary source of livelihood for many rural households in India.
  • Issues such as lack of irrigation facilities, inadequate credit facilities, low prices for agricultural produce, and unpredictable weather conditions can lead to crop failures, mounting debt, and declining incomes for farmers.
• Lack of Rural Employment Opportunities: Limited employment opportunities in rural areas have forced people to migrate to urban areas in search of work, leading to social and economic dislocation of rural communities.
• Poor Infrastructure: Lack of access to basic amenities such as water, electricity, healthcare, and education facilities in rural areas have limited the potential of these areas to develop and grow.
• Inadequate Social Protection: Lack of adequate social protection mechanisms such as health insurance, old age pensions, and disability benefits has resulted in increased vulnerability of rural households.
• Lack of Fiscal Autonomy:
  • Panchayats have only limited powers with regard to setting tax rates and revenue base since broad parameters for such exercises are fixed by the state government.
  • Resultantly, the extent of vertical gap and volume of conditional grants are much higher.
    It reduces the fiscal autonomy of the Grama Panchayats and allows only feeble scope for freedom of borrowing and development.

What are the Constitutional Provisions Related to Rural Development in India?

• Article 40 enshrines one of the Directive Principles of State Policy lays down that the State shall take steps to organise village panchayats and endow them with such powers and authority as may be necessary to enable them to function as units of self-government.
• Panchayati Raj Institutions was constitutionalized through the 73^rd Constitutional Amendment Act, 1992 to build democracy at the grass roots level and was entrusted with the task of rural development in the country.
  • The Eleventh Schedule of the Constitution places as many as 29 functions within the purview of the Panchayati Raj bodies including agricultural extension, land improvement, implementation of land reforms etc.
  • Panchayats are empowered to prepare plans for economic development and social justice in respect of subjects as devolved by law to the various levels of Panchayats including the subjects as illustrated in Eleventh Schedule.

What are the Initiatives Related to Rural Empowerment?

• Deen Dayal Upadhayay Grameen Kaushalya Yojana
• Pradhan Mantri Kaushal Vikas Yojana
• Pradhan Mantri Matru Vandana Yojana
• Mahatma Gandhi National Rural Employment Guarantee Act
• National Rural Livelihood Mission
• Pradhan Mantri Awas Yojana

Way Forward

• The Economic Survey 2022-23 highlights the need for reorientation in the face of challenges such as climate change, rising input costs, and low productivity.
• Investment in infrastructure and R&D needs to be increased by relooking at subsidies, and focus is needed on diversification to millets, pulses, oilseeds, horticulture, animal husbandry, dairying, and fisheries.
• The survey also calls for attention to be given to the rural non-farm sector and for policies to revive incomes and employment for MSMEs.
• States in India spend 60% of government expenditure, 70% of education and health spending, and a larger share in public capital expenditure. The Centre has to work closely with states in improving incomes and livelihoods, inclusive growth and sustainability in agriculture and rural areas.

India’s Fiscal Deficit Targets

In the Union Budget for 2023-24, the government announced the adoption of relative fiscal prudence and projected a decline in fiscal deficit to 5.9% of gross domestic product (GDP) in FY24, compared with 6.4% in FY23.

• The government planned to continue on the path of fiscal consolidation and reach a fiscal deficit below 4.5% by 2025-26.

What is the Direction on Deficit Given in the Budget?

• In the revenue budget, the deficit was 4.1% of GDP in 2022-23 (revised estimate). In Union Budget 2023-24, revenue deficit is 2.9% of GDP.
• If interest payments are deducted from fiscal deficit, which is referred to as primary deficit, it stood at 3% of GDP in 2022-23 (RE).
• The primary deficit, which reflects the current fiscal stance devoid of past interest payment liabilities, is pegged at 2.3% of GDP in Union Budget 2023-24.

What are the Major Steps of Government Towards Fiscal Consolidation?

1. Reduced Subsidies:

• The government has reduced the amount of money allocated for food, fertiliser and petroleum subsidies.
• The food subsidy in 2022-23 (RE) was ₹2,87,194 crore. In 2023-24, it has been reduced to ₹1,97,350 crore.
• Similarly, the fertilizer subsidy in 2022-23 was ₹2,25,220 crore (RE); it has been reduced to ₹1,75,100 crore for FY24.
• The petroleum subsidy in 2022-23 was ₹9,171 crore (RE); it has declined to ₹2,257 crore in 2023-24 (Budget estimate/BE).
• The decrease in subsidies compared to the previous year is not as sharp, but it is still a positive step towards reaching a fiscal deficit target of 4.5% by 2025-26.

2. Capital Expenditure:

• In the Budget for 2023-24, capital spending is planned to rise to 3.3% of GDP, and the government has provided an interest-free loan of ₹1.3 lakh crore for 50 years to states to boost growth.

3. Debt Management

• The majority of the fiscal deficit is financed through internal market borrowings, with a small portion coming from securities against savings, provident funds, and external debt.
  • In the 2023 Union Budget, India's external debt is only 1% of the total fiscal deficit, which is estimated at ₹22,118 crore.
  • The states are free to maintain a fiscal deficit of 3.5% of their Gross State Domestic Product (GSDP) with 0.5% tied to power sector reforms.

Why is Fiscal Consolidation Important for an Emerging Economy?

• Fiscal consolidation refers to the ways and means of narrowing the fiscal deficit. A government typically borrows to bridge the deficit. It will then have to allocate a part of its earnings to service the debt.
• The interest burden will increase as the debt increases. In the Budget for FY22, of the total government expenditure of over ₹34.83 lakh crore, more than 8.09 lakh crore (around 20%) went towards interest payment.

What is Fiscal Deficit?

About:

• Fiscal deficit is the difference between the government's total expenditure and its total revenue (excluding borrowings).
  • It is an indicator of the extent to which the government must borrow in order to finance its operations and is expressed as a percentage of the country's Gross Domestic Product (GDP).
  • A high fiscal deficit can lead to inflation, devaluation of the currency and an increase in the debt burden.
  • While a lower fiscal deficit is seen as a positive sign of fiscal discipline and a healthy economy.

Positive Aspects of Fiscal Deficit

• Increased Government Spending: Fiscal deficit enables the government to increase spending on public services, infrastructure, and other important areas that can stimulate economic growth.
• Finances Public Investments: The government can finance long-term investments, such as infrastructure projects, through fiscal deficit.
• Job Creation: Increased government spending can lead to job creation, which can help reduce unemployment and increase the standard of living.

Negative Aspects of Fiscal Deficit:

• Increased Debt Burden: A persistent high fiscal deficit leads to an increase in government debt, which puts pressure on future generations to repay the debt.
• Inflationary Pressure: Large fiscal deficits can lead to an increase in money supply and higher inflation, which reduces the purchasing power of the general public.
• Crowding out of Private Investment: The government may have to borrow heavily to finance the fiscal deficit, which can lead to a rise in interest rates, and make it difficult for the private sector to access credit, thus crowding out private investment.
• Balance of Payments Problems: If a country is running large fiscal deficits, it may have to borrow from foreign sources, which can lead to a decrease in foreign exchange reserves and put pressure on the balance of payments.

Conclusion
India’s priority is to recover the economy through capital expenditure (capex). With increased government investment in infrastructure, private investment will also increase, boosting the economic (GDP) growth, and as a result the ratio of fiscal deficit to GDP will decrease.

Status and Proceeds of Disinvestment

Context

• In the Union Budget 2023-24, the government has set a disinvestment target of Rs. 51,000 crore which is the lowest in 7 years and 21% less than the budget estimate for the current year.

Disinvestment

About

• Disinvestment means the sale or liquidation of assets by the government like Central public sector enterprises (CPSE) and state public sector enterprises, projects, or other fixed assets.
• There is a Department of Investment and Public Asset Management (DIPAM) under the Ministry of Finance for disinvestment which set the targets under each Union Budget. 
• The government then takes the final decision on whether to raise the divestment target or not.

Objectives

• Reducing Fiscal Burden: The government undertakes disinvestment to reduce the fiscal burden on the exchequer.
• Improving Public Finances: To raise money for meeting specific needs, such as to bridge the revenue shortfall from other regular sources.
• Encourage Private Ownership: Disinvestment may be done to privatise assets. However, not all disinvestment is privatisation.

Significance & Benefits

• Disinvestment allows a larger share of PSU ownership in the open market, which in turn allows for the development of a strong capital market in India.
• Disinvestment proceeds can be used to finance the fiscal deficit, to invest in the economy and development or social sector programmes.
• It allows the government and even the company to reduce debt which means the government does not have to fund the losses of a loss-making unit anymore. Eg. Air India
• It can be helpful in the long-term growth of the country.

Strategic Disinvestment, Disinvestment & Privatisation

• Strategic Disinvestment: It implies the sale of a substantial portion of the government shareholding of a CPSE of up to 50%, or such higher percentage as the competent authority may determine, along with transfer of management control.
• In Disinvestment the government sells minority shares of public enterprises to another entity and retains ownership of the enterprise.
• In Strategic disinvestment/sale, the government sells majority shares in an enterprise and gives up the ownership of the entity as well.
• Majority Disinvestment: It refers to complete privatisation wherein 100 percent control goes to the private sector.
• Minority Disinvestment: The government retains a majority in the company, typically greater than 51%, thus ensuring management control.
• Privatisation: The government whenever it so desires, may sell a whole enterprise or a majority stake in it to private investors. This is known as privatisation where the resulting ownership and control of an organisation does not rest with the government.

Timeline of Disinvestment

• Post independence the government passed the Constitution (First Amendment) Act, 1951, following which nationalisation of private firms became a standard policy tool by the government.
• This led to nationalisation of airlines, insurance businesses, and banking systems through the Air Corporations Act, 1953; Life Insurance Corporation Act 1956, Banking Companies (Acquisition and transfer of Undertakings) Act, 1970, etc.
• After the 1991 LPG reforms, there was a transition in thinking about the public and private sector. The policy formulation gathered steam lately in 2001 when a separate ministry for disinvestment came into being. 
• The process of disinvestment continued intermittently over the next decade 2004-2014. After 2014, the disinvestment policy was renewed with stake sales in PSEs.
• Against this backdrop, New Public Sector Enterprise (PSE) Policy for Atmanirbhar Bharat was notified in 2021.

New Public Sector Enterprise Policy (PSE), 2021

• The policy intends to minimize the presence of the Government in the PSEs across all sectors of the economy.
• Under the new PSE policy, public sector commercial enterprises have been classified as Strategic and Non-Strategic sectors.
• Four broad strategic sectors have been delineated:
• Atomic Energy, Space and Defense
• Transport and Telecommunication
• Power Petroleum, Coal, and other minerals
• Banking, Insurance, and Financial Services
• Non-Strategic Sector: In this sector, CPSEs will be privatised, otherwise shall be closed.
• Moving forward task: Further to fast forward the policy, NITI Aayog has been asked to work out the next list of Central Public Sector companies that would be taken up for strategic disinvestment.
• Incentivising states for disinvestment: To incentivise States to take to disinvestment of their Public Sector Companies, an incentive package of Central Funds for them will be worked out.
• Special purpose vehicle (SPV) for monetising idle land: The SPV will contribute towards Atmanirbhar Bharat by monetising the non-core assets largely consisting of surplus land with the Ministries and PSEs.

Disinvestment in Recent years

• Different central governments over the last three decades have been able to meet annual disinvestment targets only six times.
• In 2017-18, the government earned disinvestment receipts of a little over ?1 lakh crore as against a target of 72,500 crore, and in 2018-19, it brought in ?94,700 crores when the target was set at ?80,000 crores.
• In recent years, in cases of strategic disinvestment its stake was sold to another public sector enterprise.
  • When the Centre exceeded its target in 2017-18, it earned ?36,915 crores by selling Hindustan Petroleum Corporation Limited (HPCL) to the state-owned Oil and Natural Gas Corporation (ONGC).
  • In 2021-22, the Centre missed its high disinvestment target of ?1.75 lakh crore by a significant margin, raising just ?13,534 crores in disinvestment proceeds.
  • The Strategic sale in many firms was called off due to a lack of bidders and lapses in the bidding process. Eg. BPCL and Central electronics.

Green Energy and Jobs

According to a news study, India’s solar and wind energy sectors added 52,700 new workers, an eight-fold increase from financial year 2021-22.

• The study was jointly conducted by the Council on Energy, Environment and Water (CEEW), NRDC India (Natural Resources Defence Council India), and Skill Council for Green Jobs (SCGJ).

What are the Highlights of the Study?

Statistics

• Nearly 99% of the new workforce (52,100 workers) were employed in the Solar Energy Sector, with the Wind Energy sector registering very small growth (600 new workers).
• India’s solar and wind energy sectors jointly employed 1,64,000 workers as of FY’22, showing a 47% increase from FY’21. 84% of this workforce is in the solar energy sector.
• However, there has been a “huge shortage” of workers trained in upstream manufacturing segments such as making polysilicon, ingots, wafers and cells. The bulk of the current jobs are in assembling solar modules.
• This segment is the focus of the recently launched Rs. 19,500 crore (USD 2.43 billion) Production-Linked Incentive (PLI) scheme, which targets 65 GW of domestic manufacturing capacity.
• Potential
• If these trends continue, new on-grid solar (238 GW) and wind (101 GW) capacities can potentially create about 3.4 million temporary and permanent jobs.

Recommendations

• The skilling programmes must catch up with the new requirements arising from sectors such as solar module and battery manufacturing and hybrid projects.

What are the Potential and Challenges of Green Energy in India?

Potential

• India has abundant natural resources, including solar, wind, hydro, and biomass, which can be harnessed to produce renewable energy.
• Moreover, India’s rapidly growing population and economy create a huge demand for energy, which can be met in part by using green energy sources.

Potential Benefits

• Reduction in Emissions: The use of green energy sources can significantly reduce the amount of greenhouse gas emissions in the atmosphere, which will help to mitigate the impacts of climate change.
• Energy Security: India is heavily dependent on imported oil and natural gas, which makes it vulnerable to price shocks and supply disruptions. Green energy sources can reduce this dependence and increase energy security.
• Rural Electrification: Many rural areas in India still lack access to electricity, which can be provided by decentralized green energy sources, such as solar panels and small-scale wind turbines.
• Employment: The green energy sector has the potential to create millions of new jobs in India, particularly in areas such as renewable energy production, energy efficiency, and grid integration.

Challenges

• Cost: Even though the cost of renewable energy technologies has come down in recent years, they are still more expensive than traditional energy sources such as coal and natural gas.
• Grid Integration: Integrating renewable energy sources into the existing energy grid can be challenging, particularly in terms of managing fluctuations in power generation and ensuring grid stability.
• Lack of Investment: Although there has been a recent increase in investment in the green energy sector in India, there is still a lack of investment in renewable energy projects, which limits the sector's ability to grow and create jobs.
• Skilled workforce: There is a shortage of skilled workers with the necessary training and experience to work in the green energy sector, which can limit the sector's ability to grow.
• Land Acquisition: Acquiring land for renewable energy projects can be a challenge, as it requires the cooperation and consent of local communities, who may be resistant to change.

Way Forward

• The potential for green energy in India is substantial, but the country must address the challenges to fully realize that potential.
• With the right policies, investment, and training opportunities, the green energy sector in India could play a major role in driving economic growth, reducing GHG emissions, and improving energy security.
• Collaboration of public and private sectors is essential to provide the necessary investment and training opportunities.
• The government could incentivize private sector investment by providing tax breaks, subsidies, and other benefits.
• At the same time, private sector companies could provide training and development programs to help workers acquire the skills they need to succeed in the green energy sector.

India Energy Week 2023

In News

The Prime Minister inaugurated the India Energy Week (IEW) 2023, in Bengaluru.

• The PM also launched E20 fuel and flagged off the Green Mobility Rally.

What is India Energy Week? 

• India Energy Week is the first significant energy event of the G20 calendar organised from the 6th to the 8th of February and aims to showcase India's rising prowess as an energy transition powerhouse. 
• The event brings together leaders to discuss the challenges and opportunities that a responsible energy transition presents. 

Key Highlights of the Energy Week 

• Unbottled Initiative: The uniforms under the ‘Unbottled’ initiative of Indian Oil were launched by the PM. 
• Guided by the vision of the Prime Minister to phase out single-use plastic, Indian Oil has adopted uniforms for retail customer attendants and LPG delivery personnel made from recycled polyester (rPET) & cotton. 
  • Each set of uniforms of IndianOil’s customer attendant shall support the recycling of around 28 used PET bottles.
  • Indian Oil is taking this initiative further through ‘Unbottled’ - a brand for sustainable garments launched for merchandise made from recycled polyester. 
• Under this brand, IndianOil targets to meet the requirement of uniforms for the customer attendants of other Oil Marketing Companies, non-combat uniforms for the Army, uniforms/ dresses for Institutions & sales to retail customers.
  • Twin-cooktop model: The PM also flagged off the commercial roll-out of the twin-cooktop model of the IndianOil’s Indoor Solar Cooking System that works on both solar and auxiliary energy sources simultaneously, making it a reliable cooking solution for India.
  • E20 Fuel:In line with the Ethanol Blending roadmap, E20 fuel was launched at 84 Retail Outlets of Oil Marketing Companies in 11 States/UTs. 
  • E20 is a blend of 20% ethanol with petrol. The Government aims to achieve a complete 20% blending of ethanol by 2025, and HPCL and other oil marketing companies are setting up 2G-3G ethanol plants that will facilitate the progress.

India’s Energy Market

• India’s energy demand has significantly increased and in the coming years, it will reach 11% of the global demand as compared to 5% currently. This offers opportunities for energy companies to invest in and collaborate with energy firms in the country
• Under the National Green Hydrogen Mission Government had set aside ?1 lakh crore for green hydrogen. India is taking lead in the green hydrogen space, and would replace grey hydrogen (created from natural gas, or methane, using steam methane reformation but without capturing the greenhouse gases made in the process), to increase its share to 25% in the next five years.
• Domestic exploration of fuels and an increase in production of such fuels was one of the focus areas for the energy sector in the country. 
• To accommodate these changes, the government is prepared to play a catalyst in accelerating adoption of low-carbon options, including biofuels, electric vehicles, and green hydrogen.

Startup India Seed Fund Scheme

Why in News?

Recently, the Ministry of Commerce and Industry has approved Rs. 477.25 crore under the Startup India Seed Fund Scheme (SISFS), which is a flagship Scheme under Startup India Initiative.

• Seed Funding is an early stage of investment in a start-up or a new business idea. The goal of seed funding is to help the company reach a point where it can secure additional rounds of funding or generate revenue to become self-sustaining.

What is the Startup India Initiative?

• The Startup India initiative envisages building a robust Start-up ecosystem in the country for nurturing innovation and providing opportunities to budding entrepreneurs.
  • Under the Initiative, an Action Plan of 19 Action Points was unveiled by the Prime Minister in January, 2016.
  • This Action Plan laid down a roadmap for the creation of a conducive ecosystem for Startups in India.
  • The flagship schemes under Startup India initiative namely, Fund of Funds for Startups (FFS), SISFS and Credit Guarantee Scheme for Startups (CGSS) extend support to startups at various stages of their business cycle.

What is SISFS?

About

The scheme was announced at Startup India International Summit on 16^th January 2021.

• Department for Promotion of Industry and Internal Trade (DPIIT) approved an outlay of Rs. 945 Crore for the period of 4 years starting from 2021-22 to provide financial assistance to startups for Proof of Concept, prototype development, product trials, market entry, and commercialization.

Execution and Monitoring

• An Experts Advisory Committee (EAC) has been constituted by DPIIT, which will be responsible for the overall execution and monitoring of the Startup India Seed Fund Scheme.
• The EAC will evaluate and select incubators for allotment of Seed Funds, monitor progress, and take all necessary measures for efficient utilization of funds towards fulfilment of objectives of Startup India Seed Fund Scheme.

Eligibility

• A startup, recognized by DPIIT (Ministry of Commerce and Industry), incorporated not more than 2 years ago at the time of application.
• Startups should not have received more than Rs. 10 lakhs of monetary support under any other Central or State Government scheme.
• Preference would be given to startups creating innovative solutions in sectors such as social impact, waste management, water management, financial inclusion, education, agriculture, food processing, biotechnology, healthcare, energy, mobility, defence, space, railways, oil and gas, textiles, etc.
• Grants and Support
• It will support an estimated 3,600 entrepreneurs through 300 incubators in the next 4 years.
• Grants of upto Rs. 5 crores will be provided to the eligible incubators selected by the committee.
• The selected incubators will provide grants of up to Rs. 20 lakhs for validation of proof of concept, or prototype development, or product trials to startups.
• Investments of up to Rs. 50 lakhs will be provided to the startups for market entry, commercialization, or scaling up through convertible debentures or debt-linked instruments.

What is the Need for Seed Fund?

• Easy availability of capital is essential for entrepreneurs at the early stages of growth of an enterprise.
• The Indian startup ecosystem suffers from capital inadequacy in the seed and ‘Proof of Concept’ development stage.
• The capital required at this stage often presents a make-or-break situation for startups with good business ideas.
• Many innovative business ideas fail to take off due to the absence of this critical capital required at an early stage for proof of concept, prototype development, product trials, market entry and commercialization.
• Seed Fund offered to such promising cases can have a multiplier effect in validation of business ideas of many startups, leading to employment generation.

What are the other Initiatives Pertaining to Startups?

• Startup Innovation Challenges: It is a fantastic opportunity for any startup to leverage their networking and fund-raising efforts.
• National Startup Awards: It seeks to recognize and reward outstanding startups and ecosystem enablers that are contributing to economic dynamism by spurring innovation and injecting competition.
• Ranking of States on Support to Startup Ecosystems: It is an evolved evaluation tool aimed to strengthen the support of States and UTs to holistically build their startup ecosystems.
• SCO Startup Forum: The first-ever Shanghai Cooperation Organisation (SCO) Startup Forum was launched in October 2020 to develop and improve startup ecosystems collectively.
• Prarambh: The ‘Prarambh’ Summit aims to provide a platform to the startups and young minds from around the world to come with new ideas, innovation and invention.