What Budget 2021 can do for startups
The evolution of India’s startup landscape has been spectacular, rising as it did from a nascent promise to become the world’s third-largest in less than two decades. 25 unicorns, and a funding of $14.5 billion as on January 1, 2020, underlined a clipping pace of growth in this sector. But Covid-19’s trail of devastation did not spare the startup ecosystem. The National Association of Software and Service Companies (Nasscom) estimated that 40% of Indian tech startups had to cease operations. Yet, many of them showed tremendous grit to beat the odds — some even growing exponentially — and are poised to sprint into future growth.
Be it through cost reductions, agility to pivot, reimagine and refocus, or by retaining investors support, entrepreneurs endured the crisis quite creditably. Some like Unacademy, Nykaa, Postman, Razorpay and Cars24 even joined the unicorn league. Others like Nocca, MyLab, Bione and Redcliffe Life Sciences adeptly moved into biotech, medtech, edutech and healthcare.
Besides their nimble-footedness, support of the government, trade associations, investors and corporates helped this sector stand sturdy. Hence it is imperative that a greater boost is provided to entrepreneurs and startups in the coming budget.
In 1991, GoI’s setting up of software technology parks of India (STPIs) changed the fortunes of the Indian IT industry, catalysing an enormous growth of software exports. Covid-19 has given rise to a new breed of entrepreneurs willing to bet on technology to address unmet consumer needs, both in rural and urban India. Like the software technology parks of India, the Indian startup ecosystem has also a pivotal role to play in catalysing India’s employment-based growth story. Can Budget 2021 allow GoI to take a leap of faith and create a conducive operating climate for startups?
Here are a few suggestions on behalf of startups that could be included in next week’s budget announcement:
- Remove all forms of taxes (direct and indirect) on any startup company created anywhere in India till it reaches a revenue of Rs 500 crore, or 12 years, whichever is earlier.
- Extend the tax exemption for startup investors for a period of 12 years, or till the sale or transfer of such investment, whichever is earlier.
- Allow investors to write off unsuccessful startup investments without burdensome questions.
- Incentivise means to draw in and augment domestic funding, which is currently negligible. One measure could be to reduce longterm capital gains on the sale of shares to 10%, making it on par with foreign investors.
- Overhaul foreign exchange inflow and outflow systems to ensure that Indian startups can compete globally, and effectively partner with global stakeholders (customers, suppliers, investors, etc.)
According to the micro, small and medium enterprises (MSME) ministry, 6.8 million Udyog Aadhar-registered entities, and close to 63 million in total, dot the country’s MSME landscape. In FY20-21, 49.81% of India’s total exports came from this sector while generating employment to 110 million people. 18 of the 30 unicorn Indian startups brought in foreign direct investments (FDI). India had a record $73 billion FDI during the FY19-20 as per the commerce ministry.
Startups are expected to scale and expand in 2021, especially with the ‘Make in India’ and ‘Aatmanirbhar Bharat’ initiatives promoting entrepreneurship in a significant way among young aspirants. More importantly, they are venturing into specialised areas, as well as deep and emerging technologies, that can make India establish its primacy in the global scene.
Predictable cash flows in the form of working capital support, easier access to funds, and tax breaks will boost their contribution to economic and employment growth, and entrench India’s position as a global innovation hub.
The writer is group CEO, WNS Global Services and former chairman