This year’s Union Budget proposals seemed to provide little steps of encouragement for startups, but a closer analysis reveals that the government could not provide the sector with the much needed impetus. The hope now lies in the digital technology initiatives of the government which could broaden the business horizon of startups in India
The expectations of the Indian startup ecosystem were sky high in the run up to the Union Budget with the optimism that the government would unveil measures to unleash the burgeoning potential of the sector. However,budgetary proposals of the finance minister Arun Jaitley with regard to startups were reiterations of the past commitments given out by the government but the much needed big push seemed to be missing.
While the budget gave a 100% tax exemption from profits for a block of 3 years in the first five years of a startup, this would eventually mean very little for the founders who hardly see any profit in the initial years. The other proposals include exemption on capital gains, if investments have been made in notified startups or through the government’s startup funds. It has also called for a simpler registration process. But these measures are not big enough to catapult any tech entrepreneur.
The big dampener in the Union Budget came in the form of minimum alternative tax (MAT) at a minimum rate of 18.5%. Neha Khanna, co-founder, Enablers and director at investment advisory firm Valpro said, “Even for profitable companies, with MAT being applicable, the net benefit would be 10-12% rather than a full exemption as was anticipated,” she remarked.
Ravi Kiran, angel investor and co-founder, VentureNursery said, “Measures to give fillip to startups reflect inadequate understanding of the startup ecosystem by our policy makers. The budget lacks any real attempt to increase the base of angel investors and corporate angels, and introduce incentives for people to take high risks and invest in disruption and innovation.”
Even from the investor perspective, there has been demand that the period of long term capital gain tax exemption be reduced and be treated on par with the norms for listed companies. This would have meant that more capital would flow into the startup ecosystem.
Ravi Gururaj, chairman of the Nasscom Product Council noted that the move to reduce—from three to two years—the period for getting benefits of the long term capital gain regime in case of unlisted companies was a good one. He felt that startups could have been treated on par with the listed companies in this regard as it would have encouraged investors. The government has already given its backing to the sector with the launch of the Startup India campaign. The core focus being on unshackling of regulations to create a conducive environment for both the entrepreneurs and investors.
There is already a realisation that the startups in India would be the next big employment generator in the country. Today, India is the third largest startup hub in the world with more than 4,200 companies and dominated by technology entities. Given this backdrop there is now expectation that some of the proposals in the Union Budget would bring in long term benefit for startups especially the digital push of the government in the areas of literacy and financial transactions.
Naveen Surya, MD, ItzCash said, “The digital literacy scheme proposed to cover 6 crore additional rural households comes in as a very welcome move. Targeting more than 70% of the country’s population and enhancing digital literacy in this segment will ensure deeper penetration of the digital platform in rural India while driving the macro scheme of ‘Digital India and Digital Money’ with a renewed vigour.”
The startup companies also felt that the move to ease the registration process and digitisation land records, creating digital depository to store school and college certificates, e-procurement of agricultural produce, etc will open up avenues for startups. “The ease of registration process and the hope to complete the task in one day is a welcome measure. At least this will allow a speedy way to setting up a venture and help startups to focus on the building disruptive products and services without worrying about profits or losses,” said, Shashank ND, founder & CEO of healthcare startup Practo.
The recognition is there by the government that startups will become the next big growth engine of the country, but there were only small encouraging steps in the Union Budget. The hope now lies that during the course of the year, that some more initiatives would be unveiled.