Continuation of taxation reforms, be it for ESOPs, Capital Gains and reduced GST for EV, edtech and other sectors have been the primary demand of the startup community
While MSMEs want further extension of credit line schemes such as TLTRO, edtech startups seek PPP opportunities to deepen their presence in tier 3 and 4 cities
Grappling with chip shortage, the EV industry expects the government to handhold support on infra gaps, including scope and extension of FAME II, low-interest-rate loans for EVs and more
Speaking at the inauguration of the Union Budget Session of the Parliament which will be held in two parts this year (from January 31 to February 11 and March 14- April 8), President Ram Nath Kovind stated,
“More than six lakh jobs have been created by these startups. In 2021, during the Corona period, more than 40 unicorn startups have emerged in India, each with a minimum market valuation of INR 7,400 Cr.”
In fact, having added 42 unicorns in 2021 (and two listed companies crossed $1 Bn in market cap), India is now home to 90 unicorns, bagging the third position in terms of the highest number of unicorns, followed by the UK in the fourth rank. With over $42 Bn investments in 2021 alone, Indian startups last year cross the magic number of $100 Bn investments into the ecosystem last year. The momentum is likely to continue this year too, given the fact that in the first month of 2022, Indian startups have already raked in $4.6 Bn in funding.
Under Startup India, 62,700 startups have been registered so far, and the fund of funds have benefitted around 552 startups so far. A rendition of these achievements was on display when a startup Botlab lighted up the sky by flying 1,000 drones during the historic ‘Beating Retreat’ on Jan 29 in presence of President Kovind.
Just a few years back, flying commercial drones was illegal in India.
However, this may still not be the rosy picture of Indian startups as we are far behind China and US in terms of funding, unicorns, intellectual properties, and many other parameters; this definitely stands at its own, promising the potential that we would like to see in the near future.
The big question is, will the finance minister Nirmala Sitharaman press the ‘push and pull’ buttons to provide further direction, stability and growth to the startup ecosystem?
Here’s a list of the five most sought after demands of the Indian startup ecosystem from Union Budget 2022
Deferring ESOP Taxation To Bringing Tax Parity On Capital Gains
The Modi government has undertaken some historic tax reforms. This includes abolishing the angel tax, reducing GST and more.
The startup community has earmarked further tax reforms that must be done to keep the developments and investments on track. Among the key tax-related demands are:
- Extend The Scope Of ESOP Taxation Reforms: The 2020 reforms should include all the startups instead of handpicking a few, demand startups.
- Capital Gains Tax Treatment: Currently, capital gains from listed stocks are taxed at 10%, while capital gains from unlisted shares are taxed at 20%. This should end. There should be a level playing field for both listed and unlisted stocks.
“With startups being at the forefront of new-India, driving growth and innovation, we implore the government to level the capital gains tax treatment across listed and unlisted securities,” said Gopal Jain, cofounder and managing partner, Gaja Capital.
- Reduction Of GST On Certain Startup Goods & Services: Right from edtech, agritech, supply chain to drone and EV, startups have requested the government to reduce GST on certain products and extend PLI amid shortage and supply chain issues citing Covid.
Extension of Credit Schemes To MSMEs
MSMEs have been instrumental in pumping essential blood into the veins of the Indian economy. However, in the last two years, MSMEs which were mostly operating offline, were adversely impacted due to the pandemic.
As a result, the Modi government and RBI had previously launched a slew of schemes, including the Emergency Credit Line Guarantee Scheme (ECGLS) of INR 20 Lakh Cr targeted Long Term Repo Operations (TLTRO, TLTRO 2.0) schemes etc.
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While startups have played a key role in bringing MSMEs online, there is a popular demand in extending these benefits amid the Covid third wave as well. Some further modifications of schemes like CGTMSE financial assistance schemes have also been suggested by a few.
Bring In More PPP Projects To Implement National Education Policy
In edtech, there has been a demand for standardisation of rules to regulate edtech startups specifically.
‘What demonetisation did to fintech startups like PhonePe and Paytm, Covid is doing to edtech startups!’ However, in order to grow further, particularly in tier 3 and 4 cities, there needs a lot of support from government bodies, feel edtech startups.
Edtech startups’ list of demands from Union Budget 2022 include:
- Reduce GST on certain edtech products
- Implement National Education Policy
- PPP edtech projects
Govt Can’t Shy Away From Its Role In Setting Up EV Industry
Led by Indian automobile players Tata and Mahindra, EV startups have been increasingly working towards building EV infrastructure across the country. EV startups such as Ather energy, Ola Electric and many others have seen a huge spike in demands irrespective of their supply chain limitations.
However, the EV industry is still in its nascent age and the Indian government can’t shy away from its role in establishing the sector. Besides the obvious semiconductor shortage, the EV players, while speaking to Inc42 stated that the FAME II has not been developed keeping the EV startups in mind and hence is not applicable across the segments.
As a result, a large number of EV startups have not been benefitting from the scheme. Similarly, the Indian government needs to launch initiatives to push banks and NBFCs to offer further low-interest rate loan schemes for EVs.
EV startups’ key demands from the Union Budget include:
- Push Banks And NBFCs to offer low-interest rate loans for EV vehicles
- Reduce GST on Lithium-ion batteries
- Help address the semiconductor shortage and develop alternatives
- Expand The Scope and Subsidy Under FAME II
- Guide to build infrastructure, domestic supply chain
“We would like to see the Finance Minister address the critically-important area of making wide and varied range of financing options available for EV commercial vehicles’ buyers – as this is extremely critical for further increased uptake of EVs in India, going forward,” Deepak MV, CEO & cofounder, Etrio said.
Healthtech Needs Govt Funding And Incubation Support
Indicating that Indian startups alone can’t fix the healthcare mess countrywide, healthtech startup founders have pointed out that the innovation market risks that healthetch sector pose and want capital insurance and assurance from the government as investors seldom invest for the development of healthcare or pharma projects.
“Hardly 5% of the healthtech projects that startups worked on during the last two years of Corona were finally green signalled by all the essential authorities for the full-fledged market launch,” said one of the founders on the condition of anonymity.
Healthtech sectors’ key demands from the Union Budget are:
- More Budget allocation of at least 2.5% of the GDP to Healthcare
- Enable PPP startup-friendly policies and projects
- Incentivise R&D by startups
Having hailed startups for all the feit it achieved, will the government be able to meet the startup expectations?
Like, the previous budgets, FM Sitharaman has a tough budget to work on. And, the priorities yet again maybe misplaced, thinks economist Swaminathan Anklesaria Aiyar. According to him, the state elections will be a more important determinant of the budget than any other issue including Covid.
“This is not an economy that is in really good shape. Rather, this is an economy that needs care. In these circumstances, I would not expect a tough budget. I would not expect a tough stance,” said Aiyer.
Stay tuned to Inc42 for all the Union Budget 2022 updates!