Finance minister Nirmala Sitharaman while addressing Indian startups at length, made a slew of announcements such as allowing passthrough of losses at the end-of-fund life for Category I & Cat II AIFs, Section 56 exemption to Category II AIFs and tax exemption for fund managers in IFSC.
However, unlike the BJP’s election manifesto which had promised to create a Seed Fund worth INR 20K Cr, the Union Budget 2019 did not even hint at any such seed fund.
Commenting on the Union Budget 2019, TV Mohandas Pai, former Infosys CFO and partner, Aarin Capital told Inc42, “There are more misses than hits. The marginal tinkering on taxes will not move the needle.”
He added that the Union Budget 2019 does not reflect a complete plan to realise the vision. There seems to be no funding for the INR 20K Cr fund for seed capital, tax incentives for investment in startups etc.
It’s worth noting that in addition to INR 20K Seed Fund announcement, the BJP in its Startup Vision document had announced to facilitate the establishment of 50K new startups and 100 new Innovation Zones in the nation by 2024. However, all these couldn’t make it to the Union Budget 2019 agenda.
Sitharaman announced the consolidation of the Scheme for Promotion of Innovation, Rural Industry and Entrepreneurship’ (ASPIRE) for setting up of Livelihood Business Incubators (LBIs) and Technology Business Incubators (TBIs). However, no announcement has been made pertaining to creating 100 Innovation Zones in Urban Local Bodies (ULBs) as laid out in the Startup Vision document.
“We need a plan of action of accelerated growth in sectors of the economy which are labour intensive like construction, real estate, garments, electronic assembly etc to grow the economy faster and create more jobs. The budget addresses many issues but what we need is many detailed programmes to accelerate growth,” asserted Pai.
While the Union Budget 2019 did not mention creating a seed fund and innovation fund for each sector, Sitharaman looked into easing some regulatory hurdles. She said, “The issue of establishing the identity of the investor and source of his funds will be resolved by putting in place a mechanism of e-verification. With this, funds raised by startups will not require any kind of scrutiny from the Income Tax Department.”
In addition, special administrative arrangements would be made by the Central Board of Direct Taxes (CBDT) for pending assessments of startups and redressal of their grievances, the FM said. It will be ensured that no inquiry or verification in such cases can be carried out by the Assessing Officer without obtaining approval of their supervisory officer.
However, such a commitment will again be left up to the bureaucrats and the resolution is likely to take its own time for completion.