Over the last decade, the number of startups in India has increased about 7 times, according to a KPMG report released earlier this year. Imagine how many people around us would have gotten a job because of this growth? The reason for this change is country’s steadily improving ranking on Ease of Doing Business Index released by the World Bank. In the 2018 edition of the report, the country has gone up 23 positions, to register 77th rank, as compared to 100th rank in 2017. India’s standing in this list of 190 countries is a testimony to the effort by the Government of India to nurture the startup ecosystem. Towards this goal, the Government has introduced more than 150 schemes and policies for the startup community. These interventions have helped innovation from the grassroot level to the top.
As India gears up for the Union Budget 2019, India Inc. has high hopes in terms of lower cost of funding and simplification of business processes. If the Government addresses this area, the startup ecosystem can flourish even faster, fueling the much-needed job creation.
Easier compliance - Despite tax rebates for startups, any business with more than Rs 20 lakh annual revenue needs to file more than 20 GST returns in a year. For a startup, the cost of compliance could be very high. On the other hand, any non-compliance (even if due to lack of knowledge) could attract a huge penalty. It is time that the government simplifies compliance norms and encourage more people to turn their ideas into real business.
Making tax exemptions easier- The section 80IAC of the income tax law, drafted as part of the Startup India initiative, provides 100 percent tax exemption on profits earned by eligible businesses for three consecutive assessment years out of seven years starting from the year in which the startup was founded. However, the benefits of this provision have remained limited to only a few startups. This is because the assessment of applications goes through a long chain and requires tedious documentation to showcase eligibility. This is what we can expect to change in the upcoming budget. As more startups are benefitted from tax exemption, they will have a larger chunk of cash flow to conduct their operations or expand the business. In the subsequent years, when they become eligible of taxation, they can return the benefit to the nation from their tax payout.
Infrastructure support- Logistics, real estate, electricity, and several other elements of infrastructure are the backbone for several businesses. Any investment to improve these will play a huge support to country’s startup ecosystem. In this union budget, we can expect the Finance Minister to propose certain measures which improve the state-center coordination to provide better and affordable infrastructure. Schemes which encourage public-private partnership for infrastructure growth will be an important agenda of this budget.
Easier availability of credit - The startup community demands greater access to financial resources and government funds. Credit facilities and funding through the banking system must be encouraged and further enhanced, while more early stage funding options should also be introduced which could act as a strong support for these emerging companies and facilitate their growth. Introduction of alternate financing options like P2P lending, etc which could ease the availability of credit, must be looked at. Moreover, provision of grants for research, innovation, etc could also go a long way in boosting the current startup scenario.
Government Policies – The current policy framework of the Indian government has been limiting the successful operations of many startups, foiling them to spread their wings further. Obtaining multiple certificates and registrations along with various legal complexities in the early stages takes a huge toll on these mushrooming companies. Moreover, due to the rigid investment policies, attracting the attention of domestic as well as international investors becomes quite a challenge. Therefore, the Indian startups are hoping and keeping their fingers crossed that all these and many more policy initiatives are re-visited in the upcoming Budget, and the focus should be kept on building a yet more promising and enabling environment for them.
In the last few years, there have been a lot of conversations regarding the need of job creation and compared different Governments on this parameter. I believe that the job of job creation can best be left to the private sector. The Government should support the India Inc. (especially the startup community) with a simpler regime to make India the World’s largest economy in the years to come.
(Disclaimer: The views and opinions expressed in this article are those of the author and do not necessarily reflect the views of YourStory.)