A section of Indian startups heaved a sigh of relief after Finance Minister Nirmala Sitharaman announced the budget 2023-24. Many touted the budget as progressive, but the budget has fallen short of impressing Indian entrepreneurs as the ecosystem continues to reel under a funding winter.
The nation’s national budget was widely anticipated, which counts 108 unicorns amid a robust ecosystem of 89,000 startups spread out across the country, boosting economic performance.
The budget for 2023–24 includes a few efforts that will help the startup industry get off to a great start. Still, it ignores adoption, policy, and regulatory measures relating to TDS on Virtual Digital Assets, such as cryptocurrencies. In this period of crisis, the implementation of the angel tax, which applies to investments made by non-Residents, has also not gone smoothly.
The government’s focus is on key emerging sectors
The union budget for 2023–24 strongly emphasizes emerging technologies like 5G and fintech. Also given attention are a chink of startups.
“I appreciate the government for taking a broad view of what is needed to foster innovation and entrepreneurship, the main growth drivers of our economy,” said Prof. Srivardhini K. Jha, Chairperson of the IIM Bangalore NSRCEL.
The 2023 Union Budget has taken several measures to support the startup ecosystem to lower taxes, enhance the environment for investments, and foster a culture of entrepreneurship in the nation.
The budget emphasized the streamlining of the KYC procedure, the creation of a Central Processing Center, and the implementation of a Unified Filing Process as ways to improve the ease of conducting business.
The Indian government is establishing an agriculture-focused digital public infrastructure as an open-source, open-standard, and interoperable platform to boost the country’s agri-sector.
The goal is to support farmer-focused solutions that leverage information services for crop planning and health, improved access to agricultural supplies, loans, and insurance, crop estimation, and eventually, to advance agritech firms and the sector as a whole.
To assist agri-startups in rural areas, the government announced the creation of an agriculture accelerator fund. The change intends to boost agricultural industries by introducing more advanced technologies and cost-effective, creative solutions.
Similarly, the government has suggested moving up the incorporation date for companies to qualify for income tax benefits from March 31, 2023, to March 31, 2024.
IIM Bangalore NSRCEL, COO Anand Sri Ganesh says, “Extending the tax holiday policy till 2024 and the benefit of carrying forward losses on change of shareholding of startups to 10 years of incorporation from 7 years currently is welcome.”
As 5G services are already being offered by telecom companies like Airtel and Reliance Jio, the government is attempting to use the fifth-generation mobile network for various purposes. The government will establish one hundred labs to create 5G-based applications.
Experts say that the initiatives made by the finance minister are positive, particularly those that support priority industries and high-impact clusters. A step in the right direction is encouraging more young people to start their businesses and highlighting important sectors like agriculture, clean energy, Indian goods, tourism, and transportation.
Startups in the EV and climate-tech sectors got additional encouragement through investment support for green hydrogen, viability gap funding for battery storage, and reduced customs tariffs on lithium-ion. Hopefully, centers of excellence in cutting-edge fields like robotics and artificial intelligence can help deep-tech startups grow.
Chetan Maini, Co-founder & Chairman of SUN Mobility, told beSuccess, “The announcement of INR 35,000 crore budget for green transition allocation and the proposal of zero carbon emission goal by 2070 are huge steps forward in promoting India’s progression towards green growth.”
The budget provides no solution to mitigate the poor funding situation
However, the budget squandered a significant chance to spark a dampening startup funding environment, particularly debt funding for early-stage and asset-light innovation.
With the FM’s suggestion that an angel tax applies to investments made by non-residents, the budget failed to appeal to Indian business owners. Given that most of the funding comes from foreign investors, this is expected to affect the Indian startup ecosystem significantly.
Even the angel tax exemption ends up imposing onerous limitations on startups, such as the impossibility of making salary advances, participating in stock M&A, forming a subsidiary, or making contributions to an ESOP trust.
Many startups have given up on this exemption because of the strict requirements, and many are looking to relocate abroad to escape these issues.
While several reductions and exemptions, such as those for the most fundamental customs taxes, were provided to increase overall manufacturing and productive capacity, there was a demand for a reduction in GST rates for startups that were not met.
GST directly impacts the consumption of goods and services. Therefore lowering the rates would have helped entrepreneurs by boosting demand.
Uneven Long Term Capital Gains (LTCG) tax rates that apply to unlisted and listed shares have long been a problem that needs to be fixed.
