The Indian Finance Minister is a popular man today. He has managed to put smiles on faces of many in the corporate world through what is being termed as a “prudent”, “safe” budget. Union Budget 2013 also made the fairer sex of our country feel special with provisions for ‘Nirbhaya Fund’ and the announcement of the first public sector bank by women in the country. Another group who are is also in a happy mood today are the investors in the startup space.
Sameer Guglani of Morpheus was among many who were pleased to hear FM’s intent to consider investment from corporates into technology incubators as CSR. The FM in his budget speech has said that the new Companies Bill obliges companies to spend 2 percent of average net profits under Corporate Social Responsibility (CSR). And now the Ministry of Corporate Affairs will notify funds provided to technology incubators located within academic institutions and approved by the Ministry of Science and Technology or Ministry of MSME will qualify as CSR expenditure. However, Ravi Kiran, co-founder of Venture Nursery offers a word of caution. “We have to see what type of investments made in these technology incubators will qualify as CSR.”
Ravi also points out the importance of such government aided incubators to become accountable. What really comes out of the various investments made in these incubators is still not clear. “How many jobs are created by these public incubators, how many startups come out of them? There has to be a mechanism to drive accountability ,” says Ravi.
Sharda Balaji of NovoJuris is especially curious to see the fine print of FM’s proposal which allows SEBI to prescribe the requirements for angel investor pools by which they can be recognised as Category I AIF(Alternate Investment Funds) venture capital funds. She was also happy about the special attention given to women of India in the Budget: “it seems like the FM heard some of my requests,” says Sharda.
Sunil Goyal, co-founder and CEO of YourNest Angel Fund also welcomed the Budget. “Wow this budget does sponsor investment-led growth… a good beginning to say that we are just not a consumption-led story. Expanding support to MSMEs through SIDBI and privileges for scaling up beyond 3 years shall enable MSMEs to prosper. Listing of MSMEs without IPO for informed investors shall create a market for the risk-capital starved sector,” he said.
Plans to create industrial corridors between Chennai – Bangalore and Bangalore – Mumbai, promises to infuse more life in these regions which have largely been riding on IT sector for growth. Permitting SMEs to be listed on the SME Exchange without being required to make an initial public offer(IPO) has also led to some cheer.
Compared to last year, this year’s Union Budget has done well to acknowledge and make some provisions for the startup eco-system of our country. However, some acknowledgement and recognition to private incubators who are working hard to improve the quality of entrepreneurship in the country is still missing. But what is more important than the Budget, is the real and practical measures that various Government bodies who actually implement the Budget will take. The beast will be in the details.
Additional reactions coming in to Budget 2013
Rahul Khanna, MD, Canaan Partners – “Public incubators is not the only place where all the action is happening. A way has to be found to empower private incubators that are coming up. The good thing not just about the Budget, but the general sentiment in Government about startups is that they have now started moving to neutral from negative. The needle has started swinging in our favour and we hope for good things to continue."
T.R. Bajalia, Dy. Managing Director, SIDBI
The Union Budget 2013-14 embodies strong features of promoting investment and putting the economy on the high growth path leading to inclusive and sustainable development. With a view to giving boost to small and medium enterprises, some of the benefits extended through the sector include:
Enhancing the refinancing capability of SIDBI from the current level of Rs. 5,000 crore to Rs. 10,000 crore per year. This is helpful in providing credit facilities at affordable rate by SIDBI to micro, and small enterprises through banks and SFCs. This will benefit over 3.5 lakh MSEs. The Budget is quite progressive for the growth of MSME sector.
Micro, small and medium enterprises have a large share of jobs, production and exports. Many of the SMEs do not graduate the higher category for the fear of losing the benefits associated with staying small /medium. To encourage them to grow, the Budget has proposed the continuum of benefits enjoyed by them for upto three years after they grow out of the category in they obtained the benefit. A beginning in this direction is proposed to be made by extending the non-tax benefits to the eligible units for three years after they graduate to a higher category.
Som Mittal, President , NASSCOM
The focus on SMEs and start-ups will definitely help to boost entrepreneurship in the country. Angel investing is critical for the country and the recommendations on structuring this through SEBI and providing pass through benefits is a step in the right direction. However, it would be important to amend Section 56 to make this applicable to investments above Rs 5 crore. NASSCOM will work with the Indian Angel Network and SEBI to take this forward.
CSR contribution being made applicable to technology incubators in academic institutions will enable innovation. Incubation is at a tipping point in the country and a suitable policy environment can enable this to provide the right ecosystem for entrepreneurship in India. It is recommended that this incentive be extended to all incubators registered with DST / MSME.
Access to funds through easing restrictive conditions of listing on the SME Exchange can potentially enable access to funds for innovative and young start-ups in India. Encouraging innovations for the common man through the National Innovation Council would also support young companies to build technologies relevant for India.