Budget 2021: Startups want a booster shot to ease COVID-19 pain

The startup ecosystem expects Finance Minister Nirmala Sitharaman to unveil measures in the Union Budget that will unlock capital for growth and reduce the compliance burden.
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With the Union Budget just under two weeks away, the Indian startup ecosystem expects a raft of measures from the government that will boost entrepreneurship and innovation in the new year, after it weathered a virus-ravaged 2020.

As the COVID-19 pandemic upended businesses worldwide, the situation was no different for the Indian startup ecosystem that comprises founders of companies, venture capitalists, incubators, accelerators and corporate entities.

Given the fledgling status of many startups, the effect was more pronounced: Investments were hit and many took drastic measures to stay afloat. Yet resilience saw them through. Come February 1, all eyes will be on Finance Minister Nirmala Sitharaman to ease their plight.

Union Finance Minister Nirmala Sitharaman

YourStory catches up with stakeholders in the ecosystem to understand their expectations.

Growth impetus

For 3one4 Capital Founding Partner Siddarth Pai, it is imperative the Budget addresses the core issues of the startup ecosystem and provides a conducive environment for growth.

The primary challenges for the ecosystem are taxation, ease of doing business and fund inflow, both from domestic and overseas sources.

“India has more than 63 million MSMEs (micro, small and medium enterprises), which accounted for over 50 percent of exports in FY20 and there are over 40,000 DPIIT (Department for Promotion of Industry and Internal Trade)-registered startups,” says Ankur Bansal, Co-founder and Director of debt fund Black Soil Capital. “It is important for favourable regulatory changes to increase ease of doing business and attract investments into these companies.”

In this respect, Ankur cited the high compliance cost for small investments into startups that makes it tough for them to raise funding.

“It is important that the Union Budget addresses the tax regulations as there needs to be some rationality on tax and exit framework,” says Siddarth. “An example of this is how investments into unlisted companies are taxed two-and-half times more than those of listed companies.”

Ankur says that given the country’s high capital gains and dividend taxes, investors urge Indian businesses to shift headquarters to low-tax jurisdictions such as Singapore.

“Thus, taxes should be kept low to inhibit the transfer of Indian startups to other countries and regulations imposing double taxation such as capital gains and dividend taxes should be reduced,” he adds.

Digital skills and fiscal push

The possibility of a talent exodus in the absence of forward-looking policies is another challenge for the startup community.

The danger of qualified professionals leaving the country is real, given the increased demand for digital skills and India being a key hub of availability.

The critical point the startup ecosystem wants to make is that it creates jobs and leverages technology, which strengthens the framework of the government’s Digital India drive. Stakeholders also want Sitharaman to unveil policy initiatives that will provide a thrust to digital skills.

“The government need to take this opportunity to relook at university curricula and skilling programmes and update them with relevant digital-age skills,” says Lakshmi Mittra, Vice-President and head of Clover Academy, the knowledge arm of Clover Infotech. “It must create the technology infrastructure and internet penetration to create a democratised opportunity to learn digital skills.”

COVID-19 majorly disrupted the education sector, with institutions remaining closed to curb the virus spread, even as edtech startups leveraged the exploding demand for online content and tutoring.

Sumeet Mehta, Co-founder of edtech startup Lead School, says it is important the budget takes some corrective steps through fiscal measures to boost the education sector.

Sumeet cites a report that says more than 50 percent of private schools have uncollected dues that account for 13-80 percent of their annual revenue.

“The government should consider budgetary allocation to set up a relief fund to provide easy credit or a teacher salary fund for affordable private schools that struggled through COVID-19,” he adds.

Realty and logistics boost

The pandemic also took a toll on the real estate sector as demand plummeted and projects were hit by liquidity woes.

“The liquidity crunch being faced by the real estate sector needs to be resolved immediately,” says Dhruv Agarwala, Group CEO of Elara Technologies that owns Housing.com, Makaan.com and Proptiger.com. “Although the government has announced the Rs 25,000-crore AIF (alternative investment fund) for stuck projects, the deployment of these funds has been slow. It’s important to expedite the scheme.”

He highlighted the need for a mechanism that would enable the real estate sector to receive funding from banks.

The logistics sector too is expecting some measures from the Budget, given that it has a key role to play in the government’s push for self-reliance under Aatmanirbhar Bharat, alongside the goal of India becoming a major export destination.

Dhruvil Sanghvi, CEO of logistics startup LogiNext, provides perspective: “For India, this Budget will probably be the most important one in decades. The world has changed and from our perspective, the pandemic has put all focus on the importance of logistics and technology. Currently, there is a very high degree of compliance and paperwork, which makes it difficult for technology companies to serve the global audience and this forces companies to shift base outside the country.”

He says urgent steps are needed to help high-growth startups maintain their base in India; this will help generate employment across the spectrum and revive the economy.

Gauging the mood

The availability of domestic capital is important for Indian startups aiming for growth. According to Siddarth, a considerable amount of domestic capital available with high net worth individuals is waiting to be tapped, but this requires regulatory encouragement.

Industry observers say three elements need to work in tandem—ease of doing business, raising capital and exits—to increase the vibrancy of the Indian startup ecosystem. For all this, a lot rides on the Union Budget.

For YourStory's multimedia coverage of Budget 2021, visit YourStory's Budget 2021 page or budget.yourstory.com

Edited by Lena Saha

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