Expectations vs Fulfilment: Did the Budget 2019 fulfil startup expectations?

The Government of India, under the able leadership of Prime Minister Narendra Modi, had done significantly well in its first term to bring a shape to the policies surrounding the establishment of startups in India. Serving a second term, PM Narendra Modi’s Government presented the Union Budget 2019 this time on July 5^th through India’s first woman Finance Minister Nirmala Sitharaman.

Three years after the launch of Start Up India scheme, this time’s budget holds great expectation from the Government’s finance ministry for its second term. Several opinions from startup entrepreneurs were sourced and an understanding of the need for startups was analysed. The analysis says that startups only want more clarity over the issues like Uniform GST, Angel Tax revisions, job creations, R&D fund allocation, skilling workforce and last of all the ease of doing business.

Even though the previous Modi government announced several measures, including tax holidays for certified Startups, there were several problems like angel tax and lack of funds that startups, in general, were faced. Prime Minister Narendra Modi had launched the ambitious scheme in January 2016 to create thousands of startups. Raising capital is still one of the biggest challenges for startups.

One significant announcement made by the Department for Promotion of Industry and Internal Trade (DPIIT) in February 2019 indicated that the Government increased the maximum turnover for a firm to be considered as a startup to Rs. 100 crores from earlier criteria of maximum turnover of Rs. 25 crores.

Also, recently the Government of India had released an announcement about the Fund of Funds for Startups (FFS) with corpus of Rs. 10,000 crore, to meet the funding needs of startups. As on June 24, 2019, SIDBI says it has committed Rs 3123.20 crore to 49 SEBI registered Alternative Investment Funds (AIFs). These funds have raised a corpus fund of Rs. 27,478 crore. Rs 483.46 crore have been drawn from Fund of Funds for Startups. Further, the AIFs have invested a total of Rs. 1,625.73 crore into 247 startups.

These announcements did address some critical issues of the startups but more hopes still exist among the startup entrepreneurs. Digital startups servicing various industries have poured in their expectations.

Let us first run through what entrepreneurs and CEOs of startups from varied industries expected from the Union Budget 2019.

What did the startups except:

Bhaskar Majumdar, Managing Partner, Unicorn India Ventures

Indian Startups have come a long way over the last decade. An important partner in the growth of the ecosystem is the Indian Govt which has from time to time announced initiatives for helping startups grow fast or even shown clear preference to work with them. This Budget is an important one because it comes at a time when startups are raring to go but some policy decisions are slowing down their growth. For starters, we expect the FM to abolish Angel Tax and reduce GST on technology goods from 18 percent to 10 percent. In 2016, the Govt announced Rs 10,000 crore Fund of Funds (FoF) for the startups. We would like to see full deployment of FoF because it will empower early stage VC Funds like ours to invest more in the upcoming startup ideas. Many state govts and even the Central Govt has shown clear preference to work with startups on a no. of projects. We believe that if corporates and private enterprises are incentivised, it will open more doors of opportunity for the startups.

Rajan Navani, VC & MD, JetSynthesys & Chairman CII:

A key expectation of startups from the budget is clarity and consistency on angel tax, which will act as a powerful incentive for new and innovative businesses. The limitations set like Rs 25 Cr on amounts should be waived or made substantially higher from DIPP certified credible investors and start-ups to enable scalability which is key to India’s needs of creating large scale new businesses in an accelerated time frame. Also, alterations/changes in regulations such as faster payment processing and relaxation in certain GST norms will help build a conducive environment for early-stage ventures. Overall, the start-up industry is looking at improvement in ease of doing business with a digital-first approach to enable them to scale up.

Kushal Nahata, CEO & co-Founder, FarEye:

Budget 2019 should include regulations that will drive organizations to digitalize key logistics and supply chain processes. For instance, by mandating digitalization of certain key accounting, billing, and logistics processes the government can ensure greater levels of compliance (especially with regards to environmental sustainability) and tackle corruption better. Also, this year’s budget should highlight the current state of eWay bill adoption.

The pace of development of some crucial infrastructure remains slow. There is a need to speed up the development process of projects. The government can plan to introduce special windows to help logistics startups compete with large technology providers when it comes to winning government tenders. Also, there is an urgent need to simplify GST, especially with regards to the logistics industry. Deploying a uniform GST rate across the country is another initiative that the government needs to talk about in this year’s budget.

Indroneel Dutt, Chief Financial Officer, Cleartrip:

Cleartrip is optimistic and hopeful that the government will continue to be open-minded and maintain the impetus of its past initiatives while bringing necessary reformations to further enable the aviation sector. The Regional connectivity Scheme titled UDAN needs particular attention and allocation in this Budget. Increased digital penetration in the last few years has been one of the biggest contributors to the rise of the Indian travel industry. So, we expect the budget to sustain and accelerate India’s digital journey. We also hope that the government will bring necessary provisions to accommodate four different slabs under ‘One GST Rate’ in this budget.

Prithvi Singh, Founder and CTO Gameskraft:

As an online gaming startup, we expect quite a few things from the Union Budget 2019. Given the fact that startups play a pivotal role in the growth of India’s economy, we are hoping for some much-needed relief from GST and TDS filings. We also hope the extension of the SEZ program or the launch of something similar that will solve the financial woes of early-stage startups. Many startups don’t offer basic employee benefits like health insurance, and this should be addressed immediately. Apart from that, the government should consider allocating more funds towards the development of office spaces for up-and-coming companies. When it comes to the online gaming sector, I believe the government should bring in some clarity around TDS deductions for real money games. Furthermore, we are expecting some new initiatives aimed at promoting the usage of digital wallets in India. Another demand from the government is to make long-term investments into mobile data infrastructure so more users from tier II and tier III cities come onboard.

Ankur Choudhary, co-Founder and CIO, Goalwise:

The Modi government’s first budget was a major hit among the salaried class, and rightly so. It had increased the investment limit under Section 80C. Since it has been 5 years since then, we expect the government to revise the Section 80C upwards from 1.5 lakhs to at least 2 lakhs given the inflation. While the corporate tax rate was lowered for MSMEs last year, we are now expecting the same for businesses of all sizes. On the personal finance front, the government should consider widening of tax slabs as per CII recommendations, i.e. no tax up to 5 lakhs (not just a rebate but a revision of tax slabs), 10% between 5 to 10 lakhs, 20% for 10-20 lakhs and 30% beyond 20 lakhs.

Saptorsi Hore, Chief Operating Officer, ThoughtWorks India:

To give a fillip to the IT industry, we are hoping that the upcoming full Union Budget 2019 will provide an impetus to skill development by giving incentives to companies who are actively re-skilling or training people in the newer technologies - AI, ML, AR, VR, IoT and DevOps - needed to support the vision of a Digital India. Open APIs to access relevant government data and public records will help organizations to take better data-driven decisions across different industries like Fintech, Retail, Foodtech, Agritech etc. and also use AI to provide better self service solutions to end customers. The next level of growth for the IT industry will need investment in research and development in emerging technologies like quantum computing, programmable hardware etc., thus allowing companies to get tax benefits on such investments and will provide a much-needed boost for the future.

Pravin Agarwala, co-Founder CEO, BetterPlace:

The FM Sitharaman is known to take up challenges and deliver on it. In this new avatar, we expect the FM to address many concerns, solving which can accelerate the growth of startups in India. Since we work in the blue-collar space, our goal is to help people migrate from informal to formal economy. There is a need to allocate budget for employment driven vocational centres. We believe the govt should allocate budget for building such centres to increase employment opportunities. Policy support for Nano entrepreneurs: The PM on multiple occasions has said that even a grocery store person employing 3 people is a job creator. All of us know such nano entrepreneurs are a route to creating local job opportunities as it is not possible for everyone to migrate to big cities in search of jobs. Thus, a policy framework should be designed to incentivise and encourage more nano entrepreneurs to start up. Simplify the company registration process and give them tax benefits for every job they create. Such initiatives will encourage more local job opportunities as migration from villages to big cities is not a long-term solution for job seekers. Digitization of data: Our data tells us that there are 21 lakh jobs up for grabs in the next 12 months. Having a data pipeline gives visibility and the ability to plan better. The govt has access to massive data when it comes to jobs but the job seekers don’t know where are those jobs and how to apply. With the help of govt body like NSDC, employment opportunities data should be digitized so that correct information can reach the job seekers and more people will find themselves employed. I think this should be made a focus for the next 2 years.

Dr. Rishi Bhatnagar, President-Aeris Communications & Chairman IET IoT Panel India:

The interim budget undoubtedly introduced policies to push the country towards a digital economy. I strongly believe the upcoming budget will fuel the Indian IT companies towards innovation which is the core and utmost important aspect of taking digitization at a full swing in India. Lowering the GST slabs in manufacturing devices can pose as an opportunity for the youth to lead India in this endeavour with innumerable innovative startups. This will not only take India closer to the vision of a Digital India but also widen the talent pool by creating new jobs. For an incessant spur to Make in India and Digital India, initiatives, like making National centre for Artificial Intelligence and building Centre of Excellence in collaboration with universities, will open the path for the youth in India to leverage the new state-of-the-art development infrastructure and upskill themselves to widen the job opportunity pool for themselves.

Saurabh Srivastava, Chairman & co-Founder of Indian Angel Network

We are deeply appreciative of the hard work done by DPIIT/CBDT and bringing out the Angel tax notification in February, which has alleviated startups’ problems to a large extent. Our expectation from the forthcoming Union Budget is further alleviation of regulatory friction impeding the growth of startups and angel investors. We hope that the Finance Ministry will take steps to align errant AOs who are still not falling in line with the spirit of the notification and harassing startups. We also hope that the government addresses the issue of tax authorities misusing laws such as Section 133(6) of the Income Tax Act to harass investors in startups, raising the issue of valuation all over again. This brings to nought the sanctity of all the hard work done by DIPP and CBDT in the past months to exempt genuine startups from Angel tax. Moreover, Section 56 should be eliminated completely to encourage Angel investment in MSMEs. While DPIIT has uplifted startups in its February notification, MSMEs in general, have been left out. Further, we seek clear messaging and simplification of executive processes from the Government regarding other taxes in which start-ups are usually caught up.

Kamal Dutta, MD India for Skillsoft:

The government should provide some support in the form of incentivizing companies investing in the reskilling, upskilling of their workforce for the digital age. With the shortage of skilled workforce in the deep tech sector, reskilling of employees in AI, ML, IoT will help grow India's IT sector and sharpen its competitive edge amidst the changing business landscape. There should also be some tax benefit for individuals investing in their own training and development. Introduction of more industry-specific and customized skill development programs like the 'Skill India' can help organizations acquire, retain and grow their talent base which will ultimately help these grow their capabilities and reshape India’s skilling and reskilling landscape. The ultimate benefit will be to the young and growing Indian population to secure good jobs, strengthen their career path and continuously keep learning to stay updated and ahead of the curve.

Rashi Gupta, Chief Data Scientist & co-Founder, Rezo.AI

Startups contribute substantiate growth to the economy. Hence, we urge the government to make early stage and growth capital more easily accessible for startups. Also, relaxation in the regulatory compliance procedures and development of incubation centres to aid employment generation and spur growth will open dynamics for startups to propel. Since one of the major challenge faced by startups is on regulatory and compliance front, therefore, regulations should be made more friendly for startup companies and compliance regulation should ease.

Neel Juriasingani, CEO & co-Founder, Datacultr

We believe that the funds allocated for the startups in the budget should be easily accessible to the startups incubated by the central or the state government. Besides, we expect that with the new budget, the government will introduce easy early stage funding and grants for tech startups working in the space of digital and financial inclusion. The government should also make sure that startups have a level playing field with other companies, more particularly listed companies where they can participate and win tenders for central and state government projects. Another key area that the GoI needs to address is GST compliance. We also expect the government to reduce tax rates creating a more welcoming ecosystem for the industry players. Policy regulations like these will allow entrepreneurs to devote their time, energy and resources to gain success and build upon more innovative ideas.

Anil Valluri, President of NetApp India & SAARC

The re-election of this government ensures continuity of the Government’s compelling vision for India to boost the economy and put India on the technology superhighway by 2030. Through the Union Budget 2019, it would be key for the Government to put the spotlight back on its flagship initiatives like Digital India enabling digital infrastructure as a utility to every citizen, governance and services on demand, and digital empowerment of citizens. With the help of technology, the government should focus on catalyzing the smart city programme, to become growth engines for the country’s economy. We definitely look forward to seeing the government fortify the investments in the Artificial Intelligence sector as indicated in the interim budget so that the benefits of AI technology can reach the masses. Priority should be laid on delivering this in the short, medium as well as long term - in order to shape the architecture of our society into a global one.

KEY TAKE AWAYS FROM BUDGET 2019 FOR STARTUPS

1. DD Program: Programs exclusively for startups on DD News: Finance Minister Nirmala Sitharaman proposes to start TV programmes exclusively for startups on DD News that can address issues like funding, tax issues, skilling and information and connection to venture capitalists. The programme would be designed by the startups themselves.
2. Angel tax: To resolve the angel tax issue, startups will not be subject to any scrutiny in respect to valuation. A mechanism will be set up for this verification of investors and companies. CBDT will set up mechanism to alleviate issues with pending cases regarding angel tax.
3. Funds: Funds raised by startups will not require any scrutiny by the I-T department. An e-verification portal will aid in speedy verifications
4. Period of exemption: Period of exemption for capital gains arising from sale of house for investment in startups to be extended to March 31, 2021.
5. GST: Simplified GST is in progress. GST to be further simplified to a single monthly return.
6. Job creation: The Government will increase the investment in skilling youth and make them job ready in areas on AI, ML, Robotics, etc
7. Other benefits for startups: BHIM, UPI, Aadhaar Pay, NEFT, RTGS can be used to promote less cash economy. Business establishments with an annual turnover of Rs 50 crore will have to use these modes of payments with no charges or merchant discount rates will be imposed on customers or merchants.
8. Digital payments to increase and more provisions for electric vehicles is in progress.