Note to Readers: MC ExpertEye is a weekly series of articles that will dive deep into an important topic by seeking answers from experts.
The year 2020 hit the economy hard following the pandemic. While some of the businesses started seeing corrections only towards the second half of the year, some are still struggling to come out of the pandemic blues. Given the extraordinary situation, we ask a bunch of entrepreneurs from across sectors what are the economic pain points of their businesses and their expectations from the budget this year.
Here's what they have to say:Vaibhav Tolia, chief operating officer, Dukaan
2021 and the budget should be about thriving. The onus is now on the government as they have to lead the charge, putting the focus back on small businesses. Pure offline businesses have been hit badly, owing to which a number of business owners had to embrace online commerce as the way where they could not only survive but also manage to grow.We expect the budget to make ease of doing business and running it online become simpler. The government should look to ease the rules that regulate small and medium businesses and draft new sets of compliances for digital businesses.
As far as the overall context is concerned, we expect the budget to offer modes and opportunities to facilitate easy access to capital to businesses that are reeling from after-effects of COVID-19. And also, there could be relief meted out to businesses that have incurred huge losses owing to lockdown and the effects that are still lingering.
The MSME sector in India is one of the largest employers in India and is in urgent need of revival after being affected by COVID. Flexible and revolving credit is the need of the hour to prevent the MSME sector from locking themselves into stringent loan schedules in these unpredictable times. Just like the Prime Minister's personal initiative for unlocking flexible farmer credit via 12 million Kisan Credit Cards (KCC), I hope the upcoming budget announces similar flexible credit initiatives for the MSME sector.
Atmanirbhar Bharat's MSME credit guarantee scheme has not been very successful because it depends on banks to service the MSME sector, which is not a bank's core competence. I hope the government announces an approval for Atmanirbhar Bharat Scheme's credit to directly flow through fintechs and NBFC and reach the MSME that are in desperate need right now.
In addition, I'm hoping the budget announces govt support for the deployment of RBI's own Payment Infrastructure Development Fund to increase business for MSME via acceptance of credit card payments at your neighborhood kiranas without any additional hardware.
We anticipate Budget 2021 to bring further clarity around ETFs becoming tax-deductible under Section 80-C, as proposed in the Budget presented in July 2019. Currently, ELSS funds are the only mutual funds that are eligible for tax deductions under 80-C and we believe that investments made in large-cap ETFs should be allowed to save tax under this Rs. 1.5 lakh umbrella.ETFs are passive investing instruments that have multiple advantages over actively-managed ELSS funds including saving on fees and taking on lower risk compared to active management risk for funds benchmarking to a common index. Saving on income tax will further incentivize investors to invest in these funds.
Investment stalwarts like Warren Buffet have also been strong proponents of passive investing and ETFs. Globally, passive instruments like ETFs find favour over active mutual funds. This trend is slowly growing in India as well where ETFs account for 8 percent of total AUM of the mutual fund industry up from less than 4 percent in 2019. ETFs have been the format of choice for the government’s disinvestment efforts with CPSE and Bharat-22 funds and have also been employed as vehicles by the Employee’s Provident Fund Organisation (EPFO) for equity allocation in its corpus.Nitin Sharma, Partner, India co-head, Antler Global
I think the biggest needle mover is for the government to aggressively solve for domestic capital formation. I am referring to the sad fact that in India, only 3-4 percent of all venture capital deployed is sourced domestically. In China, this proportion is as high as 80 percent. Think about that yawning gap. While domestic Alternative Investment Funds (AIFs) are growing, the bulk of the capital is still coming from foreign investors.
Our largest domestic corpuses – insurance companies, banks, corporate balance sheets, etc –are not anywhere close to investing in the venture asset class, and by extension, the tech ecosystem. In China, the government made it a strategic priority and created various avenues for public and private monies to go into venture funds (as Limited Partners).
I would argue that in today’s world where most of the future value creation will happen through technology in every sector, the Indian capital markets really need to catch up. On a risk-adjusted basis, exposure to the tech startup asset class may very well be a prudent (not risky) investment even for traditionally conservative pools of money. This can only move quickly with top-down government support: bigger central fund of funds, more push for LIC like entities to allocate to venture capital, better tax incentives for long-term investments in startups, etc.
Sanchit Gaurav, Founder and CEO, Housejoy
In the post-pandemic world, integration of technology is the most effective option to overcome existing and emerging challenges and meet customer expectations. There is tremendous pent-up demand in the construction sector as a vast number of projects still remain incomplete. The year 2021 has brought about a lot of opportunity for the Indian home construction, renovation and interior sector to get things back on track and move ahead. The government has been focusing on digitization and ICT driven solutions for the infrastructure sector and a number of initiatives are being launched.
To optimise the potential of the Indian real estate sector, we need to work toward the consolidation and formalisation of the segment. Until now, the real-estate sector has not been given the status of a well-organised industry and that’s where reforms, investments and efficiencies continue to suffer. By formalising it, the government can help existing players and technology-driven startups create a greater impact on the construction ecosystem. As a formal industry, the construction sector can rise to great heights and India can soon become a global construction superpower in the coming years.Meena Ganesh, MD and CEO, Portea Medical