Credit Guarantee Mechanism Should Be Implemented

The entire nation looks forward to the budget with expectation. The budget not only encapsulates the policies of the government but also sheds light on the direction the economy is expected to take. This year's budget, if anything, is looked up with even more eagerness. For one, there are many policies and schemes that have been under consideration for quite some time now which have been introduced. In addition, the government as also shown a interest in changing the status quo when it comes to enabling startups. So the expectations from the budget are even higher.

Funds
Funding is the primary concern for every startup. The Rs 10,000 crore dedicated startup to be disbursed in tranches over the next four years, which was announced in earlier budgets and reiterated at Startup India, is a great initiative. However, what is equally important is its execution on the ground. What we hope to see in the budget is a clear and measurable timeline and a detailed roadmap for its implementation.

Similarly, we look forward to the implementation of the credit guarantee mechanism for funding startups that was announced earlier during the Startup India event. This scheme is very crucial, especially in smaller towns and cities where there are no VCs or angel investors. We also hope that the government explores alternative ways of raising funds, including crowdsourcing.

Incubators and accelerators make it possible for startups to find their feet. They provide the crucial handholding and specialized support often required by startups. The government unveiled a plan to support existing incubators and set up 35 new ones. We hope that this scheme does not remain on paper but is reflected in the budget in the form of both budgetary allocations as well as a detailed implementation roadmap.

Tax
Funding can have only limited effect until supported by a startup-friendly tax regime. For instance, the funding received from angel investors is itself taxable at 33%. This compounds the funding problems for startups. The removal of Angel tax will remove another hurdle for startups looking for investments from potential investors.

The three-year tax break proposed for startups in India is very good, but it will have a limited impact. Not all disruptive innovations begin to generate a profit in the first three or even five years. We hope that the government will relook the policy and extend the tax benefits to the first three years of profits of any company beginning to make profits. Similarly, service tax, which is payable each time an invoice is generated, is often difficult to bear for startups because of the long payment cycles. A waiver or rebate on the service tax would be a great deal more helpful to startups.

The current proposal to waive capital gain tax if reinvested in government startup fund is a start, but reducing long-term capital gains tax in budget is the awaited for action. These measures will encourage individuals to invest in startups, and enable startups to explore individual funding sources apart from VCs and PEs. Policies decisions on these points in the Union Budget can substantially ease the path of the startups.

Digital India
Beyond the direct ways, there are also indirect measures that can give a shot in the arm to the startup ecosystem. We look forward to a lot of initiatives around the government's other flagship programme, Digital India. Financial inclusion at every level is essential for progress. The role of technology in financial inclusion is increasing by the day. One example is the way technology is leveraged to develop Common Services Centres (CSCs) to reach banking facilities to Village-level entrepreneurs (VLEs), who are a significant part of the startup ecosystem. We are seeing proliferation of mobile technology like never before. The mass adoption rates are simply phenomenal. The need of the hour is better infrastructure for higher mobile Internet penetration, especially in rural India, and we hope to see policies supporting this in the budget.

On one hand, customer adoption is strongly shaping technology initiatives. The response to TRAI's consultation paper on differential pricing of Internet services by the Indian consumers in favour of Net Neutrality is a case in point. At the same time, government initiatives are essential to instil confidence among consumers and usher in higher digital literacy among the people so that they are comfortable using technology. Initiatives like Aadhaar-based eKYC, E-Sign, and digital lockers will support CSCs and reach banking facilities to millions of people without access currently without brick and mortar setups. This will boost the proliferation of such services and bring bigger opportunities to startups operating in these sectors as well as their consumers. A strong push by the government in this direction in the form of budgetary allocation will go a long way in improving acceptance of such technology initiatives.

For years, startups - with their passion and their ability to harness the great Indian talent - have changed the face of India through innovation. It is great that the government is supporting the startup initiatives now. We look forward to seeing fantastic co-operation.