Since 2014, the Union Budget has been showering ‘goodies’ to the startup community reflecting the intent of the Government to support a thriving startup ecosystem in the country. Starting with a Rs 10,000 startup fund in the 2014 Budget, the government followed it up with a Rs 1,000 crore fund for tech startups and entrepreneurs in the 2015 budget, a 100 percent tax holiday for startups for the first three years of existence in 2016 and a further tax exemption in 2017 (25% for smaller companies) to make startups one of the very important cogs in the Indian economy’s wheel.
While the government’s continuous push to bolster the startup ecosystem has undoubtedly come and helped the startup ecosystem, following are the two significant anticipations from the Union Budget 2018-2019.
1. Financial assistance to help Startups attract top talent
Attracting top talent is critical to the success of any startup. Startups compete for talent with multinationals, and cannot offer large cash packages as compared to large competitors. We propose the following two ways in which the downside of joining a startup can be minimized for high-quality talent-
a. The Government can look at lowering the income tax slabs for startup employees, which will not only keep the talent motivated but also help in retaining them
b. Joining a startup may lead to an unsecured retired life. For small setups, benefits like PF may not apply. Therefore, the Government can provide support to such employees by contributing a portion of retiral/ pension schemes
Part of 10,000 crore fund can be used for the above two ‘direct support’ schemes which will benefit all eligible startups without any administrative costs being incurred. (Investing in startups via intermediary funds include a management/ administrative fee).
2. Simplification and faster execution of existing schemes
While the Government approved the establishment of Rs 10,000 crore Fund of Funds (FFS) scheme in June 2016, only Rs 600* crore has been released to Small Industries Development Bank of India (SIDBI) by the Finance Ministry. Point to be noted is the fact that the disbursal of funds to startups after sanctioning of funds to venture capital funds (VCFs) has a time lag of two-three years.
In addition to the funds, the Government must also look at simplifying the taxation arrangement under which only 74* startups have been approved last year. Approvals from DIPP, and then from IMB for taxation benefits have turned out to be a tedious process. One alternative can be assisting startups by diminishing their cost in the premature years rather than giving them tax holidays in the first three years since the maximum companies do not make any profit in the primary years.
Strategies like direct tax benefits and capital availability that work to promote large-scale business may not be the best strategies for startups. Startups have the inherent advantage of being nimble, cost-efficient and innovative. The Government should also imbibe these virtues as it comes up with strategies to create a vibrant startup ecosystem in the country. For all we know, India may lead the world by setting up a Startup Ministry!
The author is founder of i2e1, a start-up that deals in internet delivery to businesses