On February 1, the biggest expectation everyone will have from the government is to bring the economy back on track. However, as the Union Budget 2020 approaches, startups expectations are soaring high and they have their own set of recommendations. The Indian startup sector wants ease of doing business and a friendly tax regime.
In past four years, India has made remarkable progress on the Global Innovation Index, becoming 52nd most innovative country. India’s rank has risen by 29 places since 2015, when it was at the 81st spot; and this major jump can be attributed to Indian startups. A total of 21,778 startups are now recognized under the government’s Startup India Initiative.
Despite making all the noises around innovation, a huge number of startups fail due to funding crunch, investments deprivation, and tax burden. Therefore, startups want the government to make funding available.
Focus on ease of doing business; friendly tax regime
“The two important sectors that should be an area of focus in the coming Union Budget should ideally be – technology and startups. Last year, we saw India jump 14 places to be 63rd among 190 nations in the World Bank’s ease of doing business ranking, a testimony to the fact that India has made significant strides in making it easier for startups to set up their operations,” says Bhavin Turakhia, founder and CEO, Flock, an online collaboration tool.
But he feels that the government should look into easing the compliance and filings guidelines for startups and eradicate the current penal provisions.
“Also, with technological disruption being a catalyst for the growth of startups today, we expect the government to make significant investments in technology hubs that will help strengthen emerging technologies such as artificial intelligence, machine learning, Internet of Things (IoT) etc,” Turakhia adds.
As the country is witnessing this boom in digital technology adoption, the government must take the relevant steps to ensure that India is at the centre of the fourth industrial revolution.
Focus on reforms, ease of doing business, system cleansing and easing up liquidity are some areas where the startups are pinning their hopes on, informs Rajan Sharma, founder of B2B platform excess2sell.com. “With the kind of thrust on technology build-up, easy tax policies and over-all opportunities, our enterprise which focuses on the B2B segment is poised to grow at an even faster rate,” he adds.
Startups in the media and entertainment industry also seek focus on capital measures.
“We are very optimistic about a recovery and foresee the economy quickly picking pace. The media and entertainment industry has a huge potential to create huge employment opportunities, increase export services, and enhance tourism. In the last budget, the benefit of single-window approvals was a major boost,” Kunal Lakhara, VP, finance and operations at Pocket Aces, a digital entertainment startup focused on mobile video.
The government should focus on steps to provide capital to the industry players, Lakhara tells Smefutures.com. This could be in the form of incentivizing banks and other financial institutions to lend money to industry participants especially startups in the sector. Furthermore, the Budget should focus on lowering tax rates, removing exemptions, and revisiting tax regulations. This will not only provide tax reforms but also enhance the efficiency of tax collections.
On the personal front, the government should reduce taxes by enhancing the slab rates. With lower tax incidence, more will be left with the consumers to spend and consume, which in turn will create demand for products and services, Lakhara feels.
Create investor-friendly environment
Besides setting up a robust digital ecosystem for budding entrepreneurs to scale up their ideas, it is extremely important for the government to make tangible efforts with strict timelines on making it easier to do business in India, Arihant Jain, co-founder and CEO of SaaS startup Seekify.
“This will benefit startups, SMEs and attract more companies to come or invest in India. For instance, there are so many requirements for compliance regulation in India (Labour law, Companies act etc), yet there is not a single comprehensive list or way to know what compliance a company needs to adhere to. These are just a few simple things that are a deterrent to anyone wanting to do business in India,” he states.
Special VC fund; relax FDI rules for e-commerce startups
The industry needs special VC fund that can invest in early-stage startups that are involved in environmental and social causes so that impact investing can increase, feels Nohar Nath, founder of Kiabza, a re-commerce pre-owned fashion platform. “Other than that, the FDI rules for startups in e-commerce having an inventory-based business model should be relaxed to attract and encourage overseas investments,” Nath adds.
Adding to what Nath said, Yagnesh Sanghrajka, CFO at 100X.VC, a venture capital fund for startups, also believes a special VC fund, along with easing of taxation norms, is much needed for the startup ecosystem.
“Setting up a Special VC fund by the government to invest in early-stage startups will go a long way in boosting our economy and reach the $5 trillion milestone before 2025.”
Yagnesh Sanghrajka, CFO at 100X.VC
Other than that, the government should scrap Sec 56 of ITA, enable single window clearance in banks for overseas transactions, ease the taxation of ESOPs, and scrap valuation report requirements on investment in startups upto Rs. 25 crore by various regulatory agencies like Registrar of Companies (ROC), Income tax department.