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Startup Policy Rundown: Union Budget 2021, Startup India Seed Fund And More

Startup Policy Rundown: Union Budget 2021, Startup India Seed Fund And More

The Union Budget 2021 was launched with a focus on reviving some of the pandemic impacted sectors in the country, including healthcare, education, fintech and infrastructure among others

After a year of delay, the Indian government has approved the Startup India Seed Fund (SISFS)

The Indian government looks to revise the FDI policy for ecommerce companies

With a sharp focus on the revival of some of the key sectors that have suffered from the pandemic-induced market recession, India’s Finance Minister Nirmala Sitharaman on Monday (February 1) announced the Union Budget 2021 with more fiscal measures and reforms. While most of the steps were geared towards key sectors, this year’s budget was focussed on key sectors in the digital economy with increased spending on healthcare, education and employment generation in manufacturing and infrastructure. 

Reading the Union Budget from a tablet for the first time instead of a bahi khata, FM Sitharaman said the government anticipates a fiscal deficit of 6.8% of gross domestic product for 2021-22. Optimistic about the recovery of the Indian economy, she said that the current year was expected to end with a deficit of 9.5%, a sharp rise from the 7% expected earlier. 

While there were plenty of key takeaways from the Union Budget, Indian startups, however, saw only two direct announcements — the tax extension to March 31, 2022 and changes to the one person company (OPC) structure and the revised definition for small companies under Companies Act, 2013

Besides these, some of the key benefits for the Indian startup ecosystem include:

  • Amendment of Insurance Act, 1938 to increase permissible foreign direct investment limit (FDI) from 49% to 72% in insurance companies, which would allow foreign ownership and control of insurance companies in the country
  • Allocation of INR 1.5K Cr to boost the penetration of digital payments as well as other measure to boost financial inclusion in the country 
  • Setting up of ‘world-class’ fintech hub near Gujarat capital Gandhinagar at GIFT City (Gujarat International Finance Tec-City)
  • Introduction of development financial institutions (DFI) with an outlay of INR 20K Cr to boost credit access for small businesses and MSMEs 
  • Launch of AI-based features in MCA-21 with version 3.0 
  • Allocation of INR 2.23 Lakh Cr for healthcare and wellness initiatives in the country 
  • Announcement of Atmanirbhar Health Yojana with an outlay of INR 64K Cr over next six years 
  • Allocation of INR 35K Cr for Covid-19 vaccination, and more funds would be freed up, if required
  • The 100% electrification of railways by 2030 along with plans to boost the share of public transport in urban areas. Accordingly, the government has announced an outlay of INR 18K Cr for the same for the 2020-21 period
  • In the agritech space, the Indian government looks to focus on animal husbandry, dairy and fisheries, alongside special focus on agricultural credit and setting up seaweed park in Tamil Nadu
  • Expansion and implementation of National Education Policy (NEP) through specific schools for regional implementation of the policy, where more than 15K schools will be qualitatively strengthened to include all components of NEP and more. 

Startup Policies In January 2021 

Here are some of the biggest startup-related policy updates from across the country.

Indian Govt Finally Approves Startup India Seed Fund Scheme

The Indian government recently approved the Startup India Seed Fund Scheme (SISFS), which is expected to provide early-stage funds to Indian tech startups via a corpus of INR 945 Cr, to be disbursed through select startup incubators between 2021-25. 

This development comes after Prime Minister Narendra Modi announced the launch of INR 1K Cr ‘Startup India Seed Fund’ to fuel creation of new startups and advance their growth prospects. PM Modi revealed this at the fifth anniversary of the creation of the Startup India initiative. In addition to this, the government is also expected to help startups raise debt capital and more. 

This fund would be provided to startups for proof of concept, prototype development, product trials, market-entry and commercialisation of products or ideas, as mentioned by Startup India. 

RBI Launches Digital Payments Index To Track Cashless Transactions

The Reserve Bank of India (RBI) announced the launch of Digital Payments Index (DPI) as a measure to boost the adoption of digital payments across the country and map the penetration of the cashless economy. Accordingly, it would be capturing various parameters, including digital payments, demand-supply aspects, payment performance and consumer centricity. 

In another update, RBI is looking to take strict action against digital lending apps accused of harassing borrowers with harsh loan recovery methods. The central bank is also planning to launch an investigation to track the sources of funds for these app-based instant loan companies. 

Personal Data Protection Bill 2019 In Parliament 

The Indian government is likely to table the Personal Data Protection Bill 2019 in the upcoming budget session of parliament sessions. At the final stages of drafting, the draft of the bill will include 89 amendments and one new clause, as announced by Meenakshi Lekhi, chairperson of the joint parliamentary committee (JPC). But, there was no mention of PDP during the budget session. 

Policies In The Pipeline

Indian Govt To Widen Taxation Norms For Startups Headquartered Outside India 

The Indian government is looking to widen its taxation net to target flipped-structure companies, particularly the SaaS giants and enterprise tech startups that have set up shops in the US, Singapore and others. 

Undisclosed sources close to the matter told ET that India is losing out on the intellectual property (IP) value as well as tax revenue. For the foreign holding companies for the Indian startups, the tax department would likely delve deeper into the shareholding patterns, the corporate structures as well as the merit. 

India Most Likely To Drop Ecommerce Policy, Revises FDI Policy 

The minister of commerce and industry Piyush Goyal recently met the inter-ministerial group to discuss the draft ecommerce policy, which looks to set up a regulator for the sector and implement a new law to regulate how ecommerce companies store, use, transfer, processes and analyse user and non-user data. However, the discussion was less than fruitful as Goyal believes that the purpose of the policy seems to have lost. 

On the flip side, the Indian government is now looking to revise the foregin direct investment  (FDI) policy, which was last revisited in 2018, after intense pressure from seller lobby groups. This new norm is expected to hit ecommerce players Flipkart and Amazon hard. It might force them to move away from the restructured holding patterns that had been instituted after the 2018 changes.