Budget 2021: Startups welcome FM’s focus on self-reliance
Steps such as extension of tax holiday, exemption on capital gains due to investments for another year, and allocation of Rs 1,500 crore to boost digital payments are positives for the startup ecosystem.
As Finance Minister Nirmala Sitharaman struck a balance between fiscal prudence and economic growth in the Union Budget for 2021-22 — the first since the pandemic upended businesses last year — startups were not accorded much direct benefit, but foundations laid for self-reliance will likely aid their growth in the future.
“When I presented the Budget 2020-21, we could not have imagined that the global economy, already in the throes of a slowdown, would be pushed into an unprecedented contraction,” Sitharaman said during her Budget speech on Monday, referring to the debilitating effect of the COVID-19 pandemic.
With businesses emerging slowly out of a bruising year, there was a lot of expectations from the Budget and Sitharaman responded with the central theme of Aatmanirbhar Bharat focusing on six pillars: health and well-being; physical and financial capital and infrastructure; inclusive development for an aspirational India; reinvigorating human capital; innovation and research and development; and minimum government, maximum governance.
Prime Minister Narendra Modi said the Budget contains the “vision of self-reliance as well as inclusiveness”.
He said the Budget will expand opportunities for growth, offer new openings for the youth and job creation, and give wealth and wellness a boost.
Flipkart Group CEO Kalyan Krishnamurthy said: “Coming in the wake of the Covid-19 pandemic, the Union Budget looks to strengthen many of the important pillars for economic recovery and future growth. There is a clear focus on attracting greater investments into infrastructure, boosting domestic output, creating jobs, accelerating the adoption of digital technologies, and giving a much-needed boost to MSMEs and startups.”
Notably, through much of last year, the government had announced various economic packages to deal with the stress of COVID-19, causing the fiscal deficit to widen to 9.5 percent in the current fiscal. This is expected to reduce to 6.8 percent in FY22, an acceptable figure considering the economic contraction and subsequent strong signs of recovery.
“The Hon’ble FM needs to be complimented for resisting the urge to levy new taxes and thereby ensuring business sentiment remains high,” said Rahul Garg, Senior Tax Partner at PwC India. “Policy changes around the increase in FDI (foreign direct investment) limit for the insurance sector, tax exemption for aircraft leasing, and asset monetisation programme are welcome steps.”
In order to incentivise startups, Sitharaman proposed to extend their eligibility for claiming tax holiday by another year till March 31, 2022. To boost their funding prospects, the exemption on capital gains for investment was also extended by a year.
Besides, the Budget introduced a measure to incentivise the incorporation of one-person companies (OPC) without any restrictions on paid-up capital or turnover, among others. It also allowed non-resident Indians to incorporate OPCs in India.
“Reducing residency requirements for founders will allow talent to flow and boost the startup ecosystem,” said Snapdeal Co-founder and CEO Kunal Bahl. “Extension of tax holiday for startups by one year, boost to digital payments, increasing threshold for small businesses to Rs 2 crore are other gains for the startup sector.”
Contrary to expectations in the startup ecosystem, regulations surrounding employee stock ownership plans (ESOP), domestic capital, and capital gains tax were not addressed in the Budget, but there was relief that the status quo had been maintained.
The Budget move to earmark Rs 1,500 crore for incentivising digital payments is expected to be a catalyst for every segment of the startup ecosystem.
“The proposed allocation of Rs 1,500 crore to incentivize and promote digital modes of payment will lend the industry a major thrust and add to the acceleration of digital adoption in the country,” said Ravish Naresh, Co-founder and CEO of KhataBook.
The Budget also recognised the role of startups, especially consumer internet companies, in creating jobs. However, there was a need to provide a social net to workers.
“To further extend our efforts towards the unorganised labour force, migrant workers particularly, I propose to launch a portal that will collect relevant information on gig, building, and construction workers, among others,” the finance minister said in her Budget speech. “This will help formulate health, housing, skill, insurance, credit, and food schemes for migrant workers.”
Sahil Sharma, Co-founder and CEO of GigIndia, said the Budget measures will streamline the gig economy, transforming it into a more organised sector.
“Consequently, this should help attract more talent in the coming days,” he added.
Overall, the startup ecosystem welcomed the proposals of the Union Budget as there were no unpleasant surprises.
“It is a well-thought-through Budget that unlocks new opportunities for the Make in India and Digital India missions and lays down a promising roadmap of growth and opportunities for today’s young and aspirational India,” said Kalyan.
Ranen Banerjee, Leader-Economic Advisory Services at PwC India, said: “The finance minister has responded to the calls from economists for a fiscal stimulus pegging the fiscal deficit at 6.8% for FY22. She has also signalled that the fiscal policy support of the economy will continue for at least three years, with the deficit being brought under 4.5% by FY 2025-26. This is possibly a more realistic glide path, as the economy will take time to recover fully from the aftereffects of the pandemic, as well as socio-political demands that will be incumbent on the government.”
For YourStory's multimedia coverage of Budget 2021, visit YourStory's Budget 2021 page or budget.yourstory.com
Edited by Lena Saha