What's in for startups in Union Budget 2019?
Will the Budget address the key concerns of startups?
Follow this article to read the Union Budget live reporting and its impact on the startup ecosystem
With a steady eye on the upcoming General Election 2019, the Interim Budget of the BJP government for 2019 will likely be strong on optics and populist measures. In the absence of Union finance minister Arun Jaitley, who unexpectedly left for the US for medical reasons, the Budget will be presented by interim finance minister Piyush Goyal.
Considering that the outgoing Modi government has launched more than 150 schemes and policies — all of which were personally flagged off by Prime Minister Narendra Modi — everyone’s interest has been piqued, despite this Budget being a vote-on-account one.
As appears from President Ram Nath Kovind’s address to the Parliament while opening the Budget Session, healthcare and agriculture will be the focus areas for Goyal. Among the government’s flagship schemes, Ayushman Bharat, MUDRA, Startup India, Digital India, and Skill India are expected to get a fair share of budgetary allocation.
Besides, the startup ecosystem fraternity expects Goyal to address numerous policy-related issues which have been acting as a roadblock for startups and investors. In Inc42’s Budget Survey 2019, 25% of startups and investors chose the angel tax issue as the biggest problem that needs to be resolved.
Other key expectations of startups from Union Budget 2019 can be summarised under the following themes:
- Need a policy thrust to increase digital transactions
- Address the issue of ‘ease of shutting down’
- Tax holiday for government-registered startups from 3 to 5 years
- More clarity on disbursal of Fund of Funds
- Clarity on tax on ESOPs
Inc42, spoke to dozens of startups, investors, and industry experts to understand and voice their demands for their respective sectors. Here’s what they have to say:
- Fintech Startups Demand Tax Rebate, Liquidity And Policy Reforms
- Edtech Startups Demand GST Be Cut From 18% To 5%, Reskill India And More
- Healthtech, Epharma Startups Demand A New Medical Innovation Fund
- EV Startups Demand Reduction In Import Duty, GST And Better Charging Infrastructure
- E-commerce Retail Logistics: What The Ecosystem Expects From Budget 2019
- Inc42’s Budget Survey 2019: Angel Tax Exemption, Fund of Funds Implementation Top Priority
Now that you know what matters to the Indian startup ecosystem, scroll down to read today’s Union Budget live updates and its impact on the startup ecosystem.
Union Budget Highlights
A Special Mention To India’s Booming Startup Ecosystem By The FM
Piyush Goyal: India has become 2nd largest hub of startups.
Inc42 Take: According to NASSCOM, India is the third-largest startup hub based on the number of startups, while Israel is looking to compete with the country and claim the third position. Interestingly, the annual funding report by Inc42 DataLabs showed that India has been witnessing a decline in funding deals and amount. Currently, India stands at the 57th position in the Global Innovation Index out of 130 countries.
More Power To MUDRA Loans But Has It Missed The Mark?
Piyush Goyal: Allocation for Mudra loans kept at INR 4 Lakh Crore. More than 70% of MUDRA yojana beneficiaries are women.
Inc42 Take: While no official or unofficial data exists to prove it, an analysis by India Today claimed that only 3% Mudra loans can generate a monthly income of more than INR 10,000. Further, the analysis showcased that 40% of the Mudra funds are not being put to use. Former RBI governor Raghuram Rajan had once mentioned that collateral-free loans such as Mudra are more prone to turning into non-performing assets (NPAs).
Mudra stands for ‘Micro Units Development and Refinance Agency Bank. It provides loans at low rates to micro-finance institutions and NBFCs, which then provide credit to MSMEs. It was launched by Prime Minister Narendra Modi on 8 April 2015.
Will Put An Indian In Space By 2022, Says Goyal
Piyush Goyal: India to be the launchpad in the world with Gangayaan Mission with an aim to place Indian astronaut in space by 2022.
Inc42 Take: Currently, space tech startups are struggling to get funding. Also, following recent reports on ISRO cancelling the contract of Team Indus as of Jan 19, 2019, this step by the central government may bring some hope for the sector.
More Talk About EVs But No Action
Piyush Goyal: India will lead the world in transport with EV and renewable energy, making India a pollution free nation.
Inc42 Take: The timeline is still quite uncertain as no concrete initiatives, regulations, and frameworks are in place, other than the government’s much-delayed FAME Scheme — Faster Adoption and Manufacture of (Hybrid and Electric Vehicles). With pollution and worsening air quality levels at urban centres being a core issue in cities such as Delhi, a call for more clarity in such initiatives of government is long overdue.
A Welcome Move: More GST Reforms For Businesses
Piyush Goyal: Businesses with less than INR 5 crore annual turnover, comprising over 90% of GST payers, will be allowed to file return quarterly returns.
Inc42 Take: This is a welcome move for small-sized companies as they will be able to pay income tax at quarterly intervals. This will help to ease the cash flow of the companies.
A Wider Tax Base?
Piyush Goyal: More than 1 Cr people filed income tax for the first time after demonetisation.
Inc42 Take: India’s tax-GDP ratio is still abysmally low. This is largely due to the low direct tax base and India having a huge unorganised sector. While the demonetisation brought the unbooked income to light and led to increased annual income tax turnover, small and micro enterprises with borrowings of under INR 1 Mn are yet to fully recover from the move. This initiative has, however, upped the ‘formalisation’ of the economy, which is seen as an increase in ‘new to credit’ MSMEs at 4 Lakh units in the second half of 2017, as compared to over 2.7 Lakh a yeara go.
On Easing Income Tax Compliance
Piyush Goyal: All income tax returns to be processed within 24 hours and refunds to be issued simultaneously. Tax scrutiny will also now be done electronically and there will be no interaction between the tax authority and the taxpayer. Also, businesses with less than INR 5 crore annual turnover, comprising over 90% of GST payers, will be allowed to return quarterly returns.
Inc42 Take: This is good news for small companies. Instead of making a bulk income tax payment, they will now be able to do it quarterly, helping ease the cash flow of the company.
Good News For Entertainment Startups
Piyush Goyal: The entertainment industry will be a major employment driver of jobs and income. Single window clearance for movie shooting now available to all Indians as well, which was earlier was only limited for foreigners.
Inc42 Take: Startups in the entertainment industry had been restricting themselves to producing viral video content. However, this initiative may provide a huge impetus to the production houses and innovative streaming services.
1 Lakh Digital Villages In The Next 5 Years?
Piyush Goyal: Our government hopes to create 1 Lakh digital villages in the next 5 years. Jan Dhan, Aadhaar mobile, and direct benefit transfer have been game changers. Aadhaar is now near-universally implemented and has helped ensure the poor get the benefit of government schemes directly in their bank accounts.
Inc42 Take: With the increase in smartphone and internet reach, schemes such as Jan Dhan, Aadhaar mobile, and direct benefit transfer have been game changers in the last four years. Post months of discussions on the validity of Aadhaar, it is now near-universally implemented and has really helped ensure the poor get the benefit of government schemes directly in their bank accounts.
The cost of data and voice calls in India is now possibly the lowest in the world; mobile and mobile part manufacturing companies have increased from 2 to 268.
With the government’s target to build 1 lakh digital villages in the next 5 years, we hope to witness increased financial inclusion in rural India. Also, this will increase the reach of urban startups to the currently untapped rural segment in perhaps all areas but particularly in digital payments and ecommerce.
Also, with deep-pocketed companies like eBay, Amazon India, Walmart, Reliance Retail, Future Retail entering both these segments and the rise of UPI, this can be a game-changer for Indian startups in the vernacular segment as well.
Goyal Boasts About India’s Climate Change Efforts, But Ground Reality Is Different
Piyush Goyal: India provided leadership to the global climate change effort. Our commitment to promote renewable energy is reflected in our initiative to set up the International Solar Alliance. Our installed solar generation capacity has increased 10 times in the last five years; lakhs of new jobs being created by the sector.
Inc42 Take: In line with the UN Paris Climate Change Summit 2015, India has taken a number of initiatives towards the adoption of cleantech and electric mobility. These initiatives have even been applauded at various international forums.
Considering 9 out of 10 of the most polluted cities in the world are in India, EV production and infrastructure development is the need-of-the-hour.
However, typical of the Indian government’s policy flip-flops and avoidance, no policy has been formulated so far to meet the electric mobility mission. The National Electric Mobility Mission Plan (NEMMP) aimed to have 6-7 Mn EVs by 2020, but we’re nowhere close to the target even 8 years later. Instead, we saw an announcement by the minister that India is targeting going 30% electric by 2030.
According to the FAME India Scheme, the total number of electric vehicles sold in India still stands at 2,64,953, with a yearly production of around 22K per year. In contrast, China sells over 870K EVs per year, accounting for 35% of the world market supply.
While there is no EV action plan or policy implemented yet, the government has simply extended the FAME subsidy scheme on an ad hoc basis till March 31. This, on its own, won’t encourage manufacturers to invest in EVs, which demand huge investments.
However, with conglomerates like SoftBank investing in India’s renewable energy sector, India is making substantial progress in the renewable energy sector. The installed solar generation capacity in the country has increased 10X in the last five years. Also, a number of schemes have been rolled out by the government to boost the renewable energy sector.
A lot more needs to be done. There lie skill and infrastructure gaps which the government needs to address. According to reports, India will be unable to meet its commitment to generate 175 GW energy by 2022 as the sector is plagued by policy inconsistencies and discom problems. India is aiming for a 40GW (40,000 MW) capacity solar rooftop by 2022 but has been able to install only 1334 MW grid-connected solar rooftops till November 2018.
Indian startups can certainly play a crucial role here with their innovative ideas, social impact, and reach out to untapped segments. With government’s inclination towards the sector, increased investor interest is also expected in the near term.
In Good News For Defence Startups, Goyal Commits Additional Funds For Defence
Piyush Goyal: We had promised to implement ‘One Rank One Pension’. We have already disbursed over INR 35,000 cr after implementing the scheme in true spirit. For securing our borders, govt increases defence budget to over INR 3 lakh crore. Will provide additional funds for defence if needed.
Inc42 Take: There is good news for the ailing defence sector — the budget has been enhanced to over INR 3 lakh cr. The Modi government, to its credit, has brought startups into the defence space over the last few years. With a view to leverage defence-related startups and strengthen their collaboration with the defence forces — the Indian Army, Navy, and the Air Force — the government had launched the Defence India Startup Challenge on August 4, 2018.
A joint initiative of the Atal Innovation Mission, the Department of Industrial Policy and Promotion (DIPP), and the Defence Innovation Organisation (a ministry of defence initiative), the Defence India Startup Challenge aimed for startups to innovate defence solutions in 11 categories.
Along with the challenge, the defence minister also launched a number of initiatives to support startups working in defence and increase their engagement with the Indian forces. The overall objective was making India self-reliant when it comes to meeting its national defence requirements.
If the government is ready to back the scheme with more funding, it is definitely good news for startups.
However, credit usually comes with its fair share of criticism. On one hand, participating startups have earlier shared with Inc42 the sluggish nature of the Defence India Startup Challenge, where dates are extended often. Meanwhile, any war veterans have not been given benefits of the ‘One India One Rank pension’ scheme, which also reflects the limited applicability of the scheme, which the government claims — is a historic one.
Boost For Small Businesses: Faster Loans & Sourcing For SMEs, Women-Owned Enterprises
Piyush Goyal: We will source 25% material from SMEs and 3% from only women-owned SMEs for government industries. AI-based technology to be implemented for the upliftment of the MSME sector.
Inc42 Take: Goyal said that 9 AI portals will be made operational in India. However, the minister did not provide any clarity on data privacy and data protection. He also added that the government’s dedicated website for MSME borrowers offers automated processing of loans, which provides in-principal approval in less than an hour. The website reduces the turnaround time from 20-25 days to 59 minutes. Following the approval, the loan will be disbursed within a week. The commitment to source 25% material from SMEs and 3% from only women-owned SMEs will certainly bring up more small businesses in the country and have a direct impact on startups.
More LPG Connections To Drive Women’s Empowerment Initiatives
Piyush Goyal: 8 Cr free LPG connections will be provided under ‘Ujjwala’ Yojana.
Inc42 Take: This move can be considered as an important step towards women empowerment. As observed in the Rajasthan Yatra by Inc42, women’s empowerment in rural areas has been an important mandate for the government. According to 2015 data by United Nations Human Development Index, India stands at 135th position among 147 nations on women’s empowerment.
INR 500 Cr Mega Pension Scheme For Unorganised Sector
Piyush Goyal: A Mega Pension scheme of INR 500 cr for the unorganised sector, which will see an equal contribution from the government. A pension of Rs 3,000 is to be paid out per month to unorganised sector workers after retirement. About 10 cr workers will benefit from the scheme.
Inc42 Take: Ahead of the election, Goyal has announced a new pension scheme for workers and labourers from the unorganised sector, which will increase the Centre’s contribution to the sector by 4%. The pension amount has been increased from INR 3,500 to INR 7,000 per month.
The new pension scheme, called Pradhan Mantri Shram Yogi Mandhan, will provide an assured monthly pension of INR 3,000 per month, with a government contribution of INR 100 per month, for workers in the unorganised sector after 60 years of age.
During Budget 2015-16, finance minister Arun Jaitley had announced the Atal Pension Yojana (APY) as part of the National Pension Scheme. Similar to the pension scheme announced today, the APY too was focussed on all citizens in the unorganised sector who join the National Pension System (NPS) administered by the Pension Fund Regulatory and Development Authority (PFRDA).
Now, the government has announced another pension scheme with a budget allocation of INR 500 Cr. Clearly, the interim Budget seems to be interim in nature.
Small, Marginal Farmers To Get INR 6,000 Per Year In Direct Transfer
Inc42 Take: The scheme will categorically benefit the majority of the landless farmers and will also prove to be a huge push to improve the income of the farmers. It will also have an indirect effect on the agritech startups which are working for improving the soil treatment and crop yield. However, the scheme would not affect the supply chain startups as the crop distribution system will remain centralised.
Scope For Startups In Animal Husbandry
Inc42 Take: The incentives will be passed on through the Kisan Credit Card scheme. Also, an additional 3% subsidy will be offered for timely payment of loans. This move is indicative of the government’s efforts to further push the agricultural community towards the digital economy. At the same time, this will be another opportunity for digital payment and agritech startups to align with the needs of the farmers, in line with the government’s efforts.
Pradhan Mantri Kisan Samman Nidhi Scheme Approved
10 Lakh People Treated Under Ayushman Bharat So Far
Inc42 Take: As expected, interim finance minister Piyush Goyal spoke in length about the Modi government’s healthcare initiatives, the biggest among them being the world’s largest public health insurance scheme — Ayushman Bharat — launched last year.
The initiative is in line with the National Health Policy, which aims to double the government spend on healthcare — from 1.15 % of the GDP to 2.5% of the GDP by 2025. However, the budgetary allocation of INR 52,800 Cr for health in 2018-19 was hardly 5% higher than that of 2017-18 (INR 50,079.6 Cr).
Ayushman Bharat enables private players, including healthtech startups, to provide healthcare infrastructure on the basis of PPP models.
However, there isn’t much clarity yet on the Budget allocation for this health insurance programme, which claims to provide insurance to the common man of up to INR 5 lakh per family per year for hospitalisation expenses.
Increasing medical inflation is, however, adding to the worry to private players.
