What Kerala govt is doing to attract start-up entrepreneurs to the state

The southern state is creating a holistic network for local enterprises that includes marketing support and finance om easy terms

It has been a major supplier of talent for the technology industry. Several start-ups and new-age tech companies in the country today are led by people from this state. But when it comes to being an ideal destination for start-ups, Kerala has been trailing its neighbouring states such as Karnataka, Tamil Nadu and Telangana, not to mention Maharashtra and the Delhi NCR region. 

But now, the Kerala Government is going all out to attract start-ups and get them to set up bases on its territory, by relaxing norms and providing crucial financial support instead of just leaving them to the mercy of the investors.  

One of the major steps taken by the Pinarayi Vijayan-led Kerala administration has been mobilisation of around Rs 1,000 crore to support the early-stage enterprises. According to Saji Gopinath, CEO, KSUM (Kerala Startup Mission), the money was mobilised from CSR (corporate social responsibility) funds, angel investors, LPs and HNIs. KSUM is the nodal agency of the Kerala Government for entrepreneurship development and incubation activities in the state. "We generally look for deep-tech companies that have interesting, innovative and scalable ideas," he said.

There are around 2,300 start-ups across various sectors in Kerala. In order to help them become commercially successful, the state is allowing government departments to procure services or products worth up to Rs 1 crore from these enterprises, without floating any tender. 

From this April, the state will start disbursing funds to hardware start-ups under a new scheme that was announced in the recent budget. Because of the nature of their business, hardware start-ups typically need huge working capital, which isn't traditionally funded by angels, VCs or HNIs. Even the banks have certain financial norms like collateral security for giving credit to such firms.

"We have a very large number of hardware start-ups in Kerala. They face operational problems and taking prototypes to the next level. So, we have suggested to the government to have a framework under which hardware start-up requirements are funded to a certain extent,” said M Sivasankar, Principal Secretary (Electronics and IT), Govt. of Kerala.

As per the new scheme, if a start-up has received genuine orders, then an expert committee chaired by the IT Secretary can recommend a certain level of funding for the firm. Such a recommendation will allow the startup to practically go and get over-the-counter financial disbursement from state financial institutions like Kerala State Industrial Development Corporation Limited (KSIDC) and Kerala Financial Corporation (KFC). 

As per the Budget proposal, these loans would be made available to those who have secured work orders from government and quasi-government organisations, large companies and institutions. The state is mulling a scheme under which such companies can be given loans equivalent to 90 per cent of the value of their work orders, subject to a limit of Rs 10 crore at an interest rate of 10 per cent. If these are purchase orders, money will be given after discounting them. Any loss sustained on account of this will be made good by the government. 

“The first disbursement will be done in April. I hope banks will also join in this larger bracket in a short period of time, when we put this framework into practice,” Sivasankar added.

The state has also taken another key decision on impact funding. “One thing that Kerala has learned in the aftermath of the last two floods is that we need premium to sustainability,” he said. "As per the impact funding scheme, any start-up that is going to work on any of the Social Development Goal (SDG)-related themes, will get special dispensation for investing some money to kick-start the process. It is a very bureaucratic-less and red tape-less programme.” 

Financial assistance up to Rs 1 crore will be provided at the time of expansion of new product prototypes that are related to sustainable development goals of the United Nations and are also required by any government department. For this, an amount of Rs 10 crore is provided to KFC. The state has also earmarked an additional amount of Rs 73.5 crore for Startup Mission in 2020-21. 

Kerala is also looking at formalising a policy to help route CSR money into the start-up ecosystem in a very transparent manner. One way could be to infuse CSR fund into start-up incubators. 

The state has also decided to rationalise the stamp duty for start-up registration, in order to convince entrepreneurs from Kerala to register their headquarters there instead of neighbouring states.

Another reason for looking at rationalising of stamp duty was that many of the local entrepreneurs were launching their firms with registered headquarters in neighbouring states. "There has been some criticism that new companies have their headquarters in Chennai and Bemgaluru since the stamp duty in Kerala for starting and merging the companies is higher than that in Tamil Nadu and Karnataka. It will be included in the Finance Bill to examine and rationalise the rates," state Finance Minister T M Thomas Isaac had said in his Budget speech earlier this month.

Besides, the block and panchayats are also expected to support entrepreneurship training and marketing. The state is looking at providing special encouragement to start-ups in small-scale agricultural processing, and in the electrical and mechanical fields.