What Startup segment expects in Budget 2021

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Startup segment is emerging as the key segment in India. It’s playing a key role in filling the gaps across the board including the large enterprises, micro, small and medium-sized enterprises (MSMEs) as well as entrepreneurs and self-employed.

Startups, whether it’s in the technology, finance, logistics, automobile, healthcare or education space — are combining diverse industries and sectors together. It is helping the Indian economy to put forth a massive effort that is likely to trigger a positive and rapid growth in the country.

The Startup segment in India has over 1600 tech startups and last year 12 additional unicorns were added, which is highest ever in a single calendar year. Indian tech startup base is witnessing a steady 8-10% year-on-year growth, according to a Nasscom – Zinnov report.

However, the Startup segment does face unique challenges, which affects its growth prospects and obstructs its role in contributing to the India economy. Certainly, the government need to address and understand those challenges of startups segment.

Like other industries, the startup segment has also come up with its expectations for the Budget 2021. Startups and investors – a part of the growing Startup segment are hoping many of their expectations will be considered during the new financial year 2021-22 as part of Budget 2021.

Praveen Agrawal, Co-Head, India - OakNorth
Over the last 12-months, the COVID-19 crisis has impacted millions of people, forcing governments to take unprecedented measures to help navigate the economic impact. The resultant steep decline in GDP witnessed at the end of Q2 2020, was followed by a quick recovery in the subsequent quarter. We are hopeful that the next few quarters will witness a sequential improvement, helping to grow the economy above pre-Covid levels.

The upcoming budget is both critical and challenging, as on one hand, we need to manage ballooning fiscal deficit (and providing a mid-term path of fiscal stability) whilst on the other, ensure that the government and private spending continues to spur growth.

We believe that the major theme for this budget will primarily revolve around technology as an enabler to various sectors and facilitating adequate funding alternatives to micro, small and medium-sized enterprises (MSMEs). There will also be a high focus on the creation of employment opportunities for the younger segment, through fostering an environment of innovation in the start-up space.

MSMEs have been the biggest employer and growth driver for the Indian economy to date. But amidst the Covid-19 crisis, it was adversely affected due to structural liquidity issues, coupled with high funding costs. With only a small proportion of MSMEs having access to a formal credit system, significant chunks of them face working capital shortages and refinancing constraints, despite the formal financing support offered during the crisis.

We are hopeful that budget will have concrete measures to boost the startup segment, particularly the fintechs, which is proving to be highly effective and efficient in collaborating data and bringing together market participants to establish a healthy lending ecosystem.

In last year’s budget, we saw several measures pertaining to startups and fintech, including the introduction of tax relief on ESOPs and establishment of Indian datacentres and facilities. We are hopeful this budget will further capitalize on technology as an enabler in the Indian startup segment. The current system requires an extensive focus on digitization, awareness and education on technology, including Artificial Intelligence and Machine Learning across the board.

Furthermore, we expect that this budget will introduce policies aimed at ensuring higher funding to non-banking financial companies (NBFCs) and fintech’s, the easing of regulatory and compliance restrictions in the initial stages of operation, the efficient management and monetization of non-performing assets (NPAs), as well as the safeguarding of effective partnerships and collaborations across the formal and informal lending space.

Given the fiscal challenges, it will be interesting to see a balance between spending and tax collection. We believe there is a need to amend the Fiscal Responsibility and Budget Management (FRBM) act by pushing back the 3% fiscal deficit target by a few years. The 2021 budget needs to be a growth-oriented budget, incentivizing new investment, reviving consumer spending and hopefully no new taxes.

Roopa Kudva, MD – Omidyar Network India
We hope to see the upcoming budget prioritize building robust and responsible digital infrastructure, especially in sectors like health and education, where physical systems have been under a lot of pressure during the pandemic.

We have seen commendable efforts to create Open Digital Ecosystems (ODEs) in these sectors, through the National Digital Health Mission, and the DIKSHA platform. ODEs can improve service delivery by enabling transparency, interoperability, and spurring innovation.

Similar to how UPI brought about a paradigm shift in the way financial services are delivered and facilitated financial inclusion, digital ecosystems for health and education can ensure that every Indian has access to affordable and quality healthcare and education opportunities.

Using the ODE approach, the government can further strengthen digital benefit transfer mechanisms, as many more households are relying on these social safety nets in the wake of the economic shock caused by the pandemic.

In particular, the budget should ensure that funding is allocated not only for building the technology infrastructure. But also the critical non-tech layers of these Open Digital Ecosystems, such as putting in place accountable institutions with the right capacity, governance frameworks to safeguard citizens’ rights, and community engagement.

Sanjay Bhatia, Co-Founder – Freightwalla
In the year 2020, the pandemic brought global industries to their knees. The $160 billion Indian logistics industry was also not spared as it came to a standstill during the pandemic lockdown. The industry faced many challenges in terms of clearance, processing, and movement of shipments.

Few technology-driven businesses managed to overcome some of the EXIM industry’s challenges during the pandemic. The stumbling-blocks faced by the exporters and importers could have been avoided if the entire ecosystem was working digitally.

There is a pressing need for a complete digital transformation of the industry to handle international shipments efficiently. Consider the case of customs that have taken part in their processes online. There are still many things that need to be re-moulded with advanced technologies.

We hope the union budget to announce suitable investments towards the digitization of the shipping and logistics sector. A leap towards the initiative will bring in transparency, reduction in cost, and better cost management.

Digitization should also include implementing smart single-window clearance for smooth processing of shipments or approvals. Such initiatives will prepare us to tackle any untoward incidences in the future, like the current pandemic. Investments in Artificial Intelligence, Machine Learning, and BlockChain technologies can facilitate complete transformation. It can boost productivity in every sector, and style pretty effective and successful workflow

Further, the Union Cabinet recently approved a multi-modal logistics hub proposal and set up industrial corridor nodes at Krishnapatnam and Tumakuru. We hope to see implementations of these at the earliest. It will facilitate the transportation of goods, thereby cutting travel time and making the system more efficient.

There is also an expectation that the proposed National Logistics Policy may get announced during the announcement of union budget 2021. We are optimistic that that will improve productivity and reduce logistics costs.

Sumit Gupta, CEO and Co-Founder- CoinDCX
Cryptocurrency has been emerging as one of the fastest-growing digital assets globally and India has seen tremendous traction building up following the supreme court lifting the banking ban. With growing awareness, there is a growing consensus that cryptocurrencies will certainly play a crucial role in the way we deal with money and therefore it can positively contribute to the nation’s GDP.

At the moment, one cannot ignore the industry’s growth and the interest it has generated from the investors. In the past few years, the industry has generated thousands of direct employment in the country. As more and more companies related to cryptocurrency set up base in India, the industry expects recognition.

A recognition can accelerate its contribution to the GDP and employment by multifold. It will bring a trust factor not only for the retail investors but also for the institutional players. While there may be a delay in bringing in smart and sensible regulations for the sector recognising crypto as a tradable commodity will be a significant relief.

Further, to tackle anti-money laundering (AML) & other funding concerns, the government should consider a formal direction to exchanges to follow the virtual assets guidelines of the financial action task force (FATF).

Additionally, considering the ambiguity among investors pertaining to the tax applicability for the income earned from crypto trading, we expect the upcoming budget to bring in amendments in the income tax and GST laws thereby offering more clarity to investors, traders, and crypto organisations.

Anand Kumar Bajaj, Founder, MD and CEO – PayNearby
PayNearby’s retail network has worked tirelessly to ensure seamless access to financial services, especially during the peak lockdown months last year. 93% of our business correspondent network has been committed to working in tier 2 and 3 towns, serving as the sole point of cash disbursal in locations with limited financial infrastructure.

However, the commission rates for business correspondent (BC) services are very low to make it a profitable business. Additionally, BCs, by default, come under the 27% GST and 5% TDS on cash withdrawal even after the tax act having enabling provisions. This makes it difficult for them to stay afloat.

We hope that this Budget takes into consideration the tough working condition of the BC network and make a few regulatory changes to ensure the viability of a community that has been vital to the cause of financial inclusion in the country. To continue sustaining the competitive advantage in Digital proliferation in India, restoring normal MDR on transactions will incentivise the digital ecosystem and facilitate a smoother growth trajectory towards innovation.

Vikram Subburaj, Co-Founder and CEO – Giottus Cryptocurrency Exchange
Many developed nations like Japan, Australia, European Nations and the US have started experimenting with the regulatory framework for cryptocurrencies and exchanges that enable trade.

One of the major news that came recently was from the US where the US Office of the Comptroller of the Currency (OCC) has approved a crypto asset bank to start offering banking services using crypto assets. It is to be noted that just a few months back the OCC had given nod to the US Banks to offer custody services for crypto assets for their clients.

To lead the technology race, India should start investing in the bleeding edge technologies and carve out a space for itself just like how China has done in AI Space. Cryptocurrencies and blockchain are viewed by many experts as the next biggest thing right after Internet.

Now it is India’s turn to start embracing this futuristic field and start making positive efforts in building a conducive regulatory ecosystem for innovations to happen in this space from India.

Tarun Mehta, Co-Founder and CEO – Ather Energy
The introduction of several progressive policies and incentives by the government like the FAME 2 subsidy and offering income tax rebates on the purchase has led to an increase in consumer demand for electric vehicles in India.

We are also witnessing the growth of the EV industry in terms of companies launching high-quality and well-performing new products in the market. For manufacturers, one of the key challenges on investments in the sector is the concerns regarding GST inverted duty structure.

In order to minimise working capital blockage, the government should look at extending end-user based benefits to the EV industry like lowering GST rates on raw materials, allowing inverted duty refunds for research and development and capital expenditure. Especially for startup’s like ours in their growth phase, offsetting inputs on such major expenses without being GST profitable is a big challenge.

We also see a need for banking institutions to come up with innovative financial products for EV purchases. Further, startups in their growth phase suffer from a lack of options on debt financing thereby increasing finance cost burden. From an operational perspective, we are closely following the Production-linked incentive (PLI) scheme and we look forward to more progressive schemes designed for OEMs.

Vamsi Krishna, CEO and Co-Founder, Vedantu
2020 has changed the fundamentals of learning in India. Owing to the closure of physical schools and tutorial centres, online learning has witnessed massive adoption. Live online learning has helped students gain access to quality teachers and content and edutech platforms have made education more personalised, fun and interactive.

Technology is the main pillar to democratize education and it can create powerful communities. It has played a vital role in enabling the shift, especially in cities and towns with high speed internet connectivity. However infrastructural issues in the form of internet access as well as smartphone and PC penetration owing to the lack of affordability has proved to be a major roadblock in the adoption of online learning in many parts of India.

Digital infrastructure in schools, basic devices for students to access online education through PCs, tablets and mobile phones as well as seamless internet connectivity, is the need of the hour. We are optimistic that the upcoming budget will deliver on these and bring hope to students and teachers in small-town India.

Dr. Santanu Paul, Co-Founder and CEO – TalentSprint
First, 2020 has been an explosive year for online learning. We saw a dynamic shift in the education industry – new players, increased investments, and a huge influx of online learners.

In 2021, traditional educational institutions are gradually opening-up and compelled to move towards a blend of classroom and digital learning. All encouragement should be provided to entities and edutech platforms playing a pioneering role in accelerating hybrid and blended learning.

Second, 2020 is also the year when the workforce of the future began to take real shape. The demand for digital and disruptive skills have finally arrived and it will only intensify from now on. It is imperative that policymakers incentivize the acquisition of hands-on, future-ready, deeptech skills such as AI, Machine Learning, Data Sciences, Cybersecurity, and Cloud.

We need to enable home-grown edutech firms that are looking to build a strong human capital for India, as well as aspiring learners with vouchers and tax breaks. This has to happen all the way from K-12 to college to adult learning.

Finally, it would be refreshing to see large scale initiatives/announcements to transform the nationwide community of teachers and professors in non-premier academic institutions into digital-savvy resources

Ujjwal Jain, CEO and Founder – WealthDesk
Regulatory changes implemented in the last two years — starting with the imposition of LTCG in 2018, abrupt changes from providing Intraday leverage by stockbrokers and later providing relief, etc-have confused brokerages, fund managers, investors, and traders alike. Despite challenges and the pandemic, capital markets saw rapid growth last year.

The industry now needs a holistic, unambiguous and innovation-friendly regulatory regime for the emergence of big tech in financial services from India. Because multiple entities such as the RBI, SEBI, IRDAI and others govern the fintech space, there can be an overlap of regulation and contrasting views. A single entity or window for regulatory support to tech-intensive fintechs cutting across verticals can avoid confusion and bring much-needed clarity.

Fintechs are also in need of a coordinated, calibrated, and graded regulatory framework to achieve more UPI-like breakthroughs. Besides such regulatory support, a dynamic exit ecosystem, easier access to listing on exchanges, and tax exemptions for investments can bring more capital into fintechs and drive innovation in new business lines and products and diversification into new geographies.”

Sandeep Aggarwal, Founder and CEO – Droom
The aftermath of the Covid-19 has not only accelerated the need of owning a vehicle but inclined towards online buying for an automobile to avoid physical contact. No country has ever created economic growth unless it has given transportation freedom to its people.

We hope Budget 2021 continue to invest heavily in road infrastructure and don’t criticize automobile for pollution because great road infrastructure will result in no pollution and no congestion on roads. In India, only 5% of Indian households have a car, and 25% of Indian households have 2-wheeler vs 60% of households with cars in developed economies.

Demonetization, GST, and confusion around EV and BSVI have really tempered automobile demand last several years. The government should aim to announce things in this budget that can simplify the automobile industry including direct and indirect taxation, whether making it more complex.

I really hope that government makes enough rules so that inter-state transfer of vehicles has a very low entry barrier and digitization of extremely important industry for the economy. All-in-all, time is now ripe for the government to take initiatives to digitize the highly important industry which is automobile.

Neeraj Tyagi, Founder and CEO – We Founder Circle
The previous budget did not completely address the expectations and requirements of the startup ecosystem. There were some misses including – working capital crunch, tax parity on capital gains etc. This time the expectations are more due to the pandemic and this makes it a big opportunity too if addressed right.

After the Covid-19 outbreak, startups are leading the technology adaptation across the sectors. This has further built an interest among corporate to invest in startups and technology-oriented projects.

Therefore, this is the right time for the government to incentivize the startup funding and work towards relaxing the policies to encourage angel investors to invest more. Also, the government needs to push major fund allocation and also lower the GST which currently has narrowed the scope of manoeuvring for startups.

Lalit Mehta, co-founder and CEO, Decimal Technologies
The lockdown brought with it an economic downturn for enterprises of all sizes, which urged the government to offer loan moratorium to borrowers amidst liquidity crunch. While this helped kick-start the economy, the government must introduce a long-term stimulus in its upcoming budget to ensure cash-flow for the BFSI industry.

In the post-COVID19 economy, credit is going to be the enabler of businesses, we expect the government to introduce credit schemes that will provide a fillip to the sector. Schemes that would ensure continuous availability of credit as and when needed will provide a great boost, especially to the lending industry. During the lockdown, borrowing, for both commercial and personal purposes, increased, facilitated by fintech players.

We expect the government to announce necessary regulatory changes that would create an easy line of access for fintech players to secure credit from conservative banks and further disburse loans to borrowers. Covid-19 catapulted India into a digital economy and the fintech startup segment witnessed some high-value investments in 2020.

While the PM has already announced a Rs 1000 crore Startup India seed fund, the fintech startups can further benefit from the launch of a fund focused on equity capital requirements of startups in the lending space. This will help give steam to India’s $5 trillion GDP target by 2024 and fill the $380-billion MSME credit gap.

Vivek Sharma, Founder and CEO -Fixcraft
The overall automobile industry has been suffering for quite long. Due to COVID 19, the situation has become even more challenging. The upcoming budget is expected to address this long-standing situation.

Also, for the startup segment, it is imperative to maintain strong capital support. Investors have become very cautiously investing in the sector, hence a major fund allocation is required to keep the wheel rotating. There is also a need to ensure the ease of business procedures at all levels.

Farman Beig, Founder and CEO – Wat-a-Burger
Due to the coronavirus outbreak, food and beverage industry has suffered a major blow. Also, understanding the fact that this particular sector employs a huge number of semi-skilled and under-skilled manpower, it becomes imperative to enable a fast recovery system. For a food service provider, it takes multiple licenses to be able to establish a business.

And it has been this way for over years. This procedure needs to be simplified to make it more productive for an F&B business. Secondly, the sector requires reintroduction of the inputs tax credit. The budget is expected to provide the sector with smooth compliance, regulatory procedures and credit flow streams to accelerate the recovery.

Kumar Kushang, CEO and Co-Founder – SupplyNote
The startup ecosystem needs funds and capital now more than ever. The government needs to facilitate capital inflow from all possible channels. The budget should remove the corporate dividend distribution tax or levy DDT at a low rate to encourage foreign investors. Secondly, the startup segment should be able to get easy loans at low-interest rates. At this point, it’s all about taking immediate steps for faster recovery.

Rajat Singhania, Founder – HyLyt by SocioRAC
Last year Covid has impacted most of the startups who are struggling with revenue and cash flow and the government has provided much-needed initiatives for their growth. I am hopeful that the government would bring benefits to the startup segment this year too.

We also welcome the Startup India Action plan announced by PM Modi recently. The initiatives such as tax reliefs, self-certification compliance, rebate on filing a patent and simplifying patent regime are welcome steps.

Additionally, in the budget 2021 this year, we would expect the following –

  • Last year startups have seen a decrease in lending by banks, so it would be great if the government relaxed norms in this regard.
  • Reduction in GST rate would encourage the startup segment to leverage professional services for business growth and get back on track with their operations.
  • Policy towards data protection and privacy which is the need of the hour. The government is already working on it and early action would be an encouraging step.
  • Priority clearances for Startup segment in case of regulatory requirements
  • Specific initiatives to encourage government and non-government entities to use the products and services of registered startups.

Kumar Gaurav- Founder and CEO – Cashaa
I am sure the government will give adequate finance for micro-business who are destroyed in Covid-19. Co-operative societies and NBFC who financed most of the microloans should get a compensation package or liquidity for faster recovery of the economy.

As the Supreme court has already removed the ban, the crypto industry will need some time to foster innovation in crypto in India. At this stage, the only good thing which can be done to overcome the damage done is to not over-regulate it.

Keerthivasan Subramanian, Founder and CEO – Playtoome
Due to the pandemic, the funding has dried up in the startup sector. This has already resulted in aspiring entrepreneurs deferring their businesses and launches. The situation is making it challenging for early-stage startups too which have just sprouted and need a constant working capital resource.

Also, there has been a reduction in foreign investments. It is very important for the budget to take under consideration the difficult times that the new startups are going through and announce steps that would encourage the inflow of financial support to put the wheel in motion again.

Startup segment has shared many expectations for Budget 2021. But how many of them will be considered by the finance minister will only be known once the budget is presented in the parliament.

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