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Wednesday, February 10, 2016

Startup India Action Plan: Procurement Norms and Exit Provisions

Through its draft Startup India Action Plan, the Government has indicated its commitment towards a conducive ecosystem for startups. Continued from our previous post in this series, the new norms for eligible enterprises are as follows:

Relaxed norms for public procurement (See Update)

It is mandatory for government departments and public sector units to procure at least 20% from the micro and small organizations. The rule that came into effect from April 1, 2015 was designed to create greater opportunities for micro and small enterprises (MSE). Extending this benefit in the manufacturing sector, the Startup India Action Plan exempts new units from the mandatory criteria about prior experience and turnover for public tenders.

However, the companies will still need to demonstrate the capability to execute the project they apply for. They will also need to have an owned manufacturing facility in India. In addition, the parameters for quality and technical requirements under the tenders will remain unchanged.

Exit Provisions (See Update)

Acknowledging the high failure rate among startups, the Government proposed a fast-track liquidation process through the Insolvency and Bankruptcy Bill in 2015. The entities will be able to wind up within 3 months from the date of application to this effect. This period may be extended only if at least 75% of the financial creditors agree.

A licensed professional will be appointed to manage the insolvency resolution process (IRP), taking control of the firm’s assets and liabilities as a liquidator. S/he will be responsible for the fast closure and repayment to creditors within 6 months of appointment.

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