When the term ‘start-up’ comes to mind, we tend to visualise a business with a 10-15 employee strength. More often than not, we confuse a small business with a start-up.
Getting confused between a start-up and a small business or MSME is possible, because
- Both the business types are started by entrepreneurs
- Both have low employee count
- Both tend to have low revenue
But what makes them different?
Let us start by understanding their definitions.
Definition of a Start-up
A temporary organisation that is searching for a repeatable and scalable business model, and is working towards innovation and development of products having high wealth and employment generation potential.
Start-up India Scheme by the Govt of India
An initiative by the Government of India, first announced by the Prime Minister, Narendra Modi in 2015 with the intention of focussing on development and innovation of products and services and increasing the employment rate in India.
For a company to be considered eligible for DPIIT (Department for Promotion of Industry and Internal Trade) start-up recognition, it should meet the following criteria:
- Company Age: Period of existence should not exceed 10 years from the Date of Incorporation
- Company Type: Incorporated as a Private Limited Company, a Registered Partnership Firm or a Limited Liability Partnership
- Annual Turnover: Should have an annual turnover not exceeding ₹100 crore in any financial years
- Original Entity: Company should not have been incorporated by splitting up or reconstructing an already existing business
- Innovative & Scalable: Company should aim for development and improvement of a product or service and have a scalable business model for creation of wealth & employment
Definition of an MSME
An independently owned and operated enterprise that is created for profit and sells the products which are needed by customers in the local market.
On 13th May 2020, Finance Minister Nirmala Sitharaman added the additional criterion of turnover along with the investment. This definition was announced under the Atmanirbhar Bharat Abhiyaan to faciliate MSMEs to grow in size and help them deal with the difficulties levied upon by the pandemic.
As per this, there won’t be any distinction between manufacturing and services sector MSMEs, and will cover:
– Micro units with investment up to ₹1 crore and turnover up to ₹5 crore
– Small units with investment up to ₹10 crore and turnover up to ₹50 crore
– Medium units with investment up to ₹20 crore and turnover up to ₹100 crore
The definition, however, further got revised on June 1, 2020 on representations that the revision is still not in tune with the market and pricing conditions, and should be further revised upwards. As per the revised definition, it will be ₹50 crore of investment and ₹250 crore of turnover.
This step will help attract investments and create more jobs in the MSME sector. The following table provides the details of revised limits:
|Category||Old Capital||Old Turnover||New Capital||New Turnover|
|Micro||₹25 Lakh||₹10 Lakh||₹1 Crore||₹5 Crore|
|Small||₹5 Crore||₹2 Crore||₹10 Crore||₹50 Crore|
|Medium||₹10 Crore||₹5 Crore||₹50 Crore||₹250 Crore|
A start-up is established with a vision to have a huge impact on the current market. It comes into existence to become a large company that holds capacity to restructure the entire existing industry. This setup may as well create a new industry altogether.
SMEs, on the other hand, follow a defined path and a known business model. The founders of small business work with an aim to earn profits by delivering value to their customers and attain a financially viable position in the market. These setups rely on business finance to fund the company’s growth.
Start-ups show enormous potential, promise high return on investment and attempt to revolutionise the industry. An idea that is novel and has capability to change the industry has risks involved. And start-ups have risk taking capabilities.
Small businesses are not risk takers, since they follow a designated path that many, in the similar industry have followed. This guarantees them proven returns and stability with lesser risk involved.
Benefits enjoyed by MSMEs and start-ups
For an MSME to be called one and enjoy the benefits, it must be registered and have an MSME certificate. The benefits a registered MSME can avail are:
- They can bid for obtaining government tenders.
- MSMEs can get 15% import subsidy on loans for fully automatic machinery.
- It becomes easy for them to get licenses and approvals.
- They can avail reimbursement for the ISO certificate expenditure.
- They get low interest rates on loans.
- MSMEs can get the benefit of tariff and tax and capital subsidies, and an exemption under Direct Tax Laws.
To promote growth and help Indian economy, several benefits are being given to start-ups under the start-up India scheme, which are:
- Start-ups can self-certify compliance for 9 Labour Laws and 3 Environmental Laws by the means of a simple online procedure.
- For a period of 5 years, no labour law inspections are conducted, except for the cases where a violation has been reported.
- Start-ups falling under the white category (that is, non-polluting start-ups which do not require either Environmental Clearance under Environment (Protection) Act, 1986 or Consent under Air (Prevention and Control of Pollution) Act, 1981 and Water (Prevention and Control of Pollution) Act, 1974) can self-certify compliance and only random checks are carried out.
- The government provides lists of facilitators of patents and trademarks, who provide high quality Intellectual Property Right Services with swift examination of patents at lower fees. The facilitator fee is borne by the government and the start-up has to bear only the statutory fees.
- A ₹10,000 crore fund is set-up by government to provide funds to the start-ups as venture capital.
- To encourage banks and financial institutions to provide start-ups with venture capital, the government acts as a guarantor to the lenders.
- Start-ups are exempted from income tax for a period of 3 years if they are certified from Inter-Ministerial Board (IMB).
- Seven new Research Parks are being set up to provide facilities to start-ups in the R&D sector.
- Patent applications filed by start-ups are fast-tracked for examination so that their value can be realised sooner.
- In case of exit, a start-up can close its business within 90 days from the date of application of winding up.
- Start-ups get an opportunity to list product on Government e-Marketplace, which is an online procurement platform and the largest marketplace for Government Departments to procure products and services.
- DPIIT recognised start-ups are exempted from submitting Earnest Money Deposit (EMD)/bid security while filling government tenders.
One-stop-shop for the MSMEs – CHAMPIONS
The Prime Minister, Narendra Modi, recently launched the technology platform CHAMPIONS (Creation and Harmonious Application of Modern Processes for Increasing the Output and National Strength) to make the smaller units big by solving their grievances. This one-stop solution from the MSME Ministry also aims to encourage, support, help and handhold MSMEs in the current scenario.
Start-ups registering as MSMEs can benefit from this platform.
Objectives of CHAMPIONS:
Grievance Redressal: To resolve the issues faced by the MSMEs including finance, raw materials, labour, regulatory permissions.
Assistance in tapping new opportunities: To help MSMEs capture new opportunities in medical equipment and accessories manufacturing, such as PPEs, masks, etc, and facilitate them to supply in National and International markets.
Identification and Encouragement to MSMEs with potential: Those MSMEs who are able to withstand the current situation will be promoted to become national and international champions.