How this STARTUP plan can help Nirmala Sitharaman Budget for 100 unicorns by 2024
Across the world, startups are at the heart of a country's growth and development. They bring innovation, changing dynamics, and new jobs into the business environment, adding value to every sector. India has, over the last few years, seen the change a booming startup ecosystem can bring.
Now, with Budget 2019 coming up, all eyes are on Finance Minister Nirmala Sitharaman. Will she ensure that startups in India get the environment they need to thrive in?
During her previous stint as minister for commerce and industry with independent charge, Nirmala Sitharaman provided a lot of support to Prime Minister Narendra Modi’s pet initiative, StartUp India. Even then, she understood how the startup economy functioned. Much like startups that work across sectors, the minister’s work has spanned wide segments and different ministries.
As the finance minister, she must manoeuvre and walk the tightrope of the bulging fiscal deficit, even as she tries to spur growth, augment revenue, and give the economy a fillip.
This STARTUP plan is sure to help her navigate the way to a 100 unicorns by 2024.
S for stimulus
Startup funding can be the ideal way to stimulate the economy. Infusing funds into skill-heavy but capital-starved startups is one of the best ways to create wealth in society.
The government is already on the stimulus track when it comes to startups: it has created Fund of Funds (FFS) and is funding startups through AIF backed by FFS. The Startup India initiative, launched by the Modi government in 2016, has disbursed more than 30 percent (Rs 3,123.7 crore) of the Rs 10,000 crore corpus that was supposed to be deployed over the 14th and 15th Finance Commission cycles.
The BJP manifesto had promised to increase the Startup Fund to Rs 20,000 crore.
Will Finance Minister Nirmala Sitharaman follow through on that promise and increase the funds size in the Union Budget 2019?
T for thumbs up
A thumbs up not just to new ideas, but to encourage the culture of startups and risk taking.
The policies, plans, and taxation system should meet the expectations of budding entrepreneurs. For example, last year, Nirmala Sitharaman indicated that she was planning to promote women entrepreneurs and increase their participation in defence production and procurement. While government procurement is one of the ways to encourage startup businesses, other methods include a forward-looking taxation system when it comes to angel funding and others.
Another case in point can be derived from the fact that SIDBI (that oversee FFS) has given a free hand in selection of startups, which is leading to a positive impact on the startup ecosystem. VCs backed by FFS have co-invested in startups where even Chinese VCs are investors (a positive sign, as capital should be encouraged to flow in from a capital-surplus country).
A for augment
While the FM will be looking at plugging every loophole in taxation to augment government resources, the other way to fill the coffers is by way of disinvestments from PSUs.
Thanks to the foresight of Dr Venkataraman Krishnamurthy, the Father of Public Sector Undertakings in India, governments were able to divest some of their stake to meet revenue obligations. Just like India's second five-year plan (1956–60) that emphasised the development of public sector enterprises to meet Jawaharlal Nehru's national industrialisation policy, Modi’s second term should focus on creating wealth by building unicorns.
The present government can build wealth for future governments to milk from startups where it would have invested.
Currently, FFS invests in VCs, who in turn do their downstream investment in startups. When those VCs exit, they share the gains with the government.
Apart from that, when a unicorn gets sold to a MNC, the country not only gets foreign investment; it also allows the government to get a whopping tax revenue. Isn’t this a worthwhile proposition?
R for repeat and T for trust
Repeat translates into consistency and continuity. Maintaining consistency in government policies is key to supporting startups and economic growth.
Consistency leads to trust. Only when a government is consistent does it earn the trust of investors (foreign and domestic), entrepreneurs, and traders.
The startup schemes started by the Indian government should be consistently followed without any disruption. Be it taxation related to angel funding, GST for startups, ecommerce policy, or data localisation, there needs to be clearer picture for both founders and investors to forecast their future cash flow.
Factors affecting 'Ease of Doing Business' like enforcing contracts, construction permits, resolving insolvency are also necessary for increasing trust.
The other facet of trust comes from individuals and not from the government. People are more likely to do business together when they have trust in each other and in the legal system. When trust is lacking, people might be less flexible in doing transactions with each other. People’s trust in the economy can be increased by ensuring better law enforcement and legal and judicial system.
U for uplift
When a government creates wealth by helping build companies, it also helps uplift millions of people by way of employment generation.
When FFS was launched, the government envisioned creating 18 lakh jobs by the completion of full deployment of the fund. Imagine the number of jobs that will be created when the government helps and funds the building of 100 unicorns by 2024.
About 10 startups turned unicorns in India in 2018, and the ecosystem is expecting another dozen of startups to join the club in 2019. Zomato, Byju’s, Swiggy, BigBasket, Policy Bazaar are some of the Indian startups that turned unicorns last year.
P for propel
Prime Minister Modi has set a target of $5 trillion economy by 2024. That means India’s economy will need to grow 12 percent annually over the next five years.
Nirmala Sitharaman has her task cut out and will have to lead from the front, much like India cricket captain Virat Kohli does while chasing a humongous target.
If all goes according to plan, the finance minister could become the best finisher – the Dhoni of the government – by 2024.
(Edited by Teja Lele)