In the last Union budget, the government had announced several incentives for startups at the launch of the Startup India Action Plan, such as a three-year income tax holiday – subject to non-distribution of dividends and capital gains tax exemption for investments in newly formed and manufacturing micro, small, and medium enterprises by individuals.
On the other side, the unexpected demonetisation announcement caused significant liquidity issues in the economy, which can be observed even in the current scenario. As of now, demonetisation is expected to have lasting impact on a number of segments including automobiles, FMCG, and a plethora of other cash-hungry businesses.
After a disruptive 2016, entire country is gearing up with the hope of getting some breather from the government from the upcoming union budget 2017.
According to recent media reports, to boost the government’s Startup India, Standup India movement, the Department of Industrial Policy and Promotion (DIPP) is reportedly formulating a new set of tax concessions on employee stock options, unlisted securities and convertible instruments. DIPP also proposed to set up a credit guarantee fund with a budget of INR 2,000 Cr.
There no doubt that the government is taking considerable measure to boost the startup ecosystem in India. However, in anticipation of perceived resilience towards uneven economic recovery, the below suggested initiatives may come handy to address the impending issues and challenges faced by startups in India. After all, this is the first government to spot the startup space in India on such a wide scale.
Simplified And Flexible Procedure For DIPP eligibility
The government of India has taken some really impressive steps with policies which are no doubt very laudable for startups. However, the current norms laid by the government are complex and document intensive in nature. Putting together an uncomplicated procedure will foster innovations and create a conducive ecosystem for entrepreneurs in the country.
Introduction of Startup Development Bank of India (SDBI)
The Startup Action Plan announced last year, under which the credit guarantee mechanism through the National Credit Guarantee Trust Company or the Small Industries Development Bank of India (Sidbi), has been made a compulsion. But in order to actually derive benefits through such schemes, the government needs to make the application process more amicable and easy. The government must also look at introducing banks that will cater to startup’s requirements specifically in each and every district.
Also, improvising the existing relationship centers and merging it with such banks will help the government to reach out to startups at a micro level and address issues minutely. According to me,
“development happens when it reaches and benefits the end consumer.”
Redress And Simplify Tax Regime
Startups need tax breaks, Period. In the Budget, the government needs to simplify and provide some relief to startups from heavy taxes levied on them. Exemption from taxes such as, service tax and even TDS in initial years would help startups deploy their funds effectively.
Better Infrastructure For A Faster Growth
The Software Technology Parks of India (STPI) scheme played a major role in the initial success of India’s Information and Technology industry with various service based business models. However, since India is home to not just IT but also other sectors like healthcare, pharma, etc., the government should introduce more schemes which will be beneficial, and encourage entrepreneurs from other sectors to come with more and more product based unique ideas.
Ultimately the government needs to understand that the startup might be an expert in his product and may find the government procedures and taxation regime highly complex. So, a simplified process of entry and exit mechanism should be laid down for startups to encourage them to move forward.
Further, the government should also look upon PPP (public- private -partnership) model to set up world class Infrastructure facility for startup community, such zones will attract international companies to consider business in India and also allow startups to connect with global community of growth seekers.
[The author of this post is Umeash Sahhaaii, Chairman & CEO, Entrepreneur Facilitation Center (EFC).]