A deep dive into how the startup ecosystem changes post Budget 2022

Finance Minister Nirmala Sitharaman got rid of the traditional paper budget amid the pandemic, and carried her report on a tablet made in India. The digital budget — a nod to the BJP government’s startup-friendly stance — has also being hailed as an important signal of the government’s climate-conscious stance.

Sitharaman said Budget 2022 will be a blueprint for the next 25 years, and emphasised that “sabka prayaas” is expected to become a major focus for the government over the next few years for strong growth.

The Budget comes at a time when the Indian economy is on the path to recovery from the pandemic slump, with Principal Economic Advisor in the Ministry of Finance, Sanjeev Sanyal saying the economy is now performing above pre-pandemic levels.

Budget 2022 has given emphasis to India’s growing startup ecosystem, and supported venture capital in form of slashing the maximum surcharge on Long Term Capital Gains to 15 percent — bringing down the effective tax rate to 23.92 percent.

The finance minister has extended the capital gains exemption for investment in startups by one more year till March 31, 2022.

As many as 61,400 startups have been recognised by the Department for Promotion of Industry and Internal Trade (DPIIT) and more than 14,000 have been added in the fiscal year of 2021-2022.

It is rather commendable that most IT/knowledge-based sectors have reflected growth in the past six years, with 555 districts owning at least one novel startup. Delhi-NCR now seems to be India’s new startup capital, taking over the mantle from Bangalore.

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Here’s what the startup ecosystem is cheering

• There has been an augmented focus on employment, digitisation, and opportunities for young, emergent India.
• Capital gains exemption for startup investment has been extended by another year to March 31, 2022.
• The government has simplified and hastened the patents and trademarks processes. “As a result, nearly six thousand patents and more than 20,000 trademarks have been applied for in this financial year”, as stated by President Ram Nath Kovind.
• Artificial Intelligence may be used to modernise and streamline operations in various industries. The finance minister also emphasised the government's focus on the implementation and adaptation of technology-based solutions, which will assist the country achieve long-term viability while bringing about transformation. Another favoured addition has been Drone Shakti's facilitation - ‘drone as a service' with the help of startups. Sitharaman also spoke about how innovative technology can benefit both, the tech industry and the general public.
• Amrit Kaal has brought greater relief to MSMEs via development of an integrative system that connects skilling, credit, and enhanced entrepreneurial potential. This is a fundamental prerequisite for the sector's growth and survival, and will further encourage new startups.
• The boost of the startup ecosystem in India will be aided by the validation of the surcharge on long-term capital gains, which has been capped at 15 percent for individual companies and AOPs. Vested investment in the startup ecosystem through venture capital and private equity would prove to be a great incentive for startups.
• The finance minister announced that defence R&D will pave the way for startups to collaborate, with 25 percent of Defence R&D budget open to startups to design. This initiative will not only boost the development of new technological innovations, but will also invigorate the Atmanirbhar Bharat mission.
• The proposed Public-Public Partnership scheme (PPP) between private organisations and farmers for providing technology is another laudable move for technological advancement in rural sectors.

However, one of the fundamental needs for any startup - a tax holiday of five years - remains unresolved. With the landscape of unemployability, higher living costs, inflation of health costs, higher fuel costs, a tax respite, especially for the middle-income group, would have been appropriate. However, there has been no respite on that front.

Union Budget 2022-2023 may not have alleviated us of greater tax burdens, but has brought in reasonable solace during the relentless pandemic.

It is great to see measures being taken to create employment, modernise the country through digitisation, and employing technology to make education accessible for all. The vision of Atmanirbhar India and AI for all is a welcome initiative for modern India.