February 1 will mark the first report card for a year-old Startup India initiative.
Budget 2016 gave a perfectly-timed impetus with benefits like corporate tax rate at 25% for manufacturing firms, amendments in the Companies Act, 2013 to ensure a conducive environment for start-ups, with steps to ease up the registration process. In addition to the 100% deduction of profits for start-ups adhering to certain conditions under Make-in-India, a 100% tax holiday for three years was announced.
Despite the buoyancy, as many as 800 start-ups were found either unfit to survive or had already drowned, according to Tracxn’s August report titled ‘Deadpool’.
Hence, Budget 2017 is crucial for India’s start-up ecosystem, where the primary matter of concern, as for any other industry, remains taxation.
“Incentivising and giving wider tax breaks to early stage start-ups will pave way for a new breed of fearless entrepreneurs,” said Archana Khosla, founder partner, Vertices Partners. If the time span for tax exemption is extended to five to seven years from the current period of three, “a rise in the number of start-ups could also be expected,” she added.
Last year also saw drastic a fall in start-ups funding.
“The sharp 39% decline in year-on-year total funding was almost equivalent to the sizable funding received by Flipkart, Snapdeal, Ola in 2015 – in a war of who can burn more cash,” according to a report by Inc42.
Hence, to address this, an appropriate solution could only be ‘more funds’.
“The Department of Industrial Policy and Promotion (DIPP) has proposed that the period for long-term capital gains for unlisted securities should be reduced from the current limit of 24 months. This suggestion, if incorporated, would be a welcome change for increasing investments in start-ups,” Khosla said.
Another solution could be setting funds for those who have joined hands to control the ‘Deadpool’ damage.
“The corporate bodies like the Confederation of Indian Industry, Federation of Indian Chambers of Commerce and Industry and Indo-American Chambers of Commerce should get funds for setting up Startup India centres in all countries and give access to Indian start-ups,” said Rishi Kapal, CEO, Edugild.
Kapal’s also suggests “subsidy for corporate employees’ time spent on advising and partnering with start-ups, setting up design thinking centres and providing access to the start-ups, and incentivising start-ups that have women co-founders.”
And why not? Start-ups can play the biggest role in job creation, women included, and a McKinsey report shows that addition of women workforce is integral to economic growth. “$2.9 trillion of additional annual GDP in 2025 could be added in India by fully bridging the gender gap in the workplace,” it said.
To see an unhindered start-up boom, the government should conduct roadshows in other parts of the world. “Angel investors must be registered with a central government body and must meet some minimum criteria before they are allowed to invest in start-ups,” Kapal said.
There is a growing need to focus on ventures catering to impact sectors like energy, education and infra, he said, adding, “Government spending on providing cutting-edge technology, advisory and roadmap support to start-ups must be given preference.”
India also needs to focus on innovation-led technologies, particularly in the field of healthcare, fintech and education and regain the lost ground, says Harshit Desai, chief operating officer, DesignGild.
“Proper infrastructure, well-established accelerators and incubators, proper mentorship and international collaboration are the crucial aspects on which any successful start-up ecosystem is built. And unfortunately, most of the Indian start-up ecosystem is struggling in all these areas,” he added.
Seemingly, there is an urgent need to run the economy digitally. While Digital India may become the driver of Budget 2017, Startup India, though on a back seat, would still occupy a significant space as these ventures stand distinguished globally. Most recently, India’s Flipkart was placed ninth on the global start-up list of 2016.
There is an even more urgent need for the new-age ventures to grow, for it not only provides feasible and easier solutions to many of the problems engraved in the Indian system, but is also a strong force for job creation. The trend is growing so much so that many of the mid- to higher-level executives are quitting their jobs to start their own ventures whereby their experience works against issues that still exist and remain unserved.
Thankfully, this Budget is likely to spin things around. The sense is stronger, particularly after the Commerce and Industry Minister Nirmala Sitharaman hinted earlier this month that start-ups may get additional tax benefits on the eventful day.