The tax exemptions under Budget 2023 will provide increased disposable income in the hands of salaried consumers, which should help boost consumer demand. Rising incomes, consistent growth, and political stability have fuelled an evolution in Indian consumption patterns where people are spending more on lifestyle items like health, education, leisure, and technology in addition to the basics.
India is emerging as one of the strongest business environments in the world, and our entrepreneurial spirit is one of our greatest strengths. Make AI in India, National Data Policy, MSME focus resolutions, E-courts, Digi Locker, 100 5G Labs initiatives are laying the foundation for startup growth. These projects would improve the information discovery, facilitating smoother transactions, and linking consumers and startup businesses in omni-channel ways.
Prioritising Cutting Edge Sectors
Finance Minister Nirmala Sitharaman recommended prolonging the period of incorporation for income tax benefits to qualifying startups by one more year until March 31, 2024, citing the value of entrepreneurship for the nation's economic development. The FM also suggested increasing the period of time that startups can carry over losses from changes in shareholding from the current seven years to ten.
A few of the initiatives that helped the startup industry get off to a strong start included:
* Allocating Rs 283.5 crore for the Startup India Seed Fund Scheme,
* Rs 1,000 crore for the Fund of Funds for Startups,
* Facilitation of the creation of a fund for AgriTech startups through NABARD,
* Promotion of new-age businesses by facilitating drone-as-a-service,
* Creation of an expert committee to monitor the mobilisation of funds to startups through venture capitalists and private equity.
Few other policy and direct measures have also been proposed in this budget with a strong push towards achieving the G20 targets and Net Zero Targets. Green Hydrogen, Clean Energy, Electric Vehicles and Artificial Intelligence are a few of the sectors which the government is very keen to promote and develop over the next few years.
India is in hot pursuit of becoming a preferred manufacturing hub for the world and taking several measures in this direction. The capital outlay of Rs 10 lakh crore will indirectly but significantly benefit startups building for the new India.
Catch all the LIVE updates on Budget 2023
Digital Thrust
Continuing the thrust on the digital transformation initiative, the FM spoke of introducing a National Data Governance policy to provide access to anonymised data for growth of startups. This will provide a boost to data management and analytics space which a lot of startups are working on and developing various solutions for enterprises.
For digital push, the government has announced a reduction in customs tax on the import of some components and inputs, such as camera lenses, and has prolonged the concessional duty on lithium-ion cells for batteries for an additional year, building on plans to push India as an electronics manufacturing hub.
The FM revealed that the number of mobile phones produced in India increased from 5.8 billion units priced at roughly Rs 18,900 crore in 2014–15 to 31 billion units worth at more than Rs 2 .75 lakh crore in the most recent fiscal year. The FM stated that the government will lower the basic customs duty on components of open cells in TV panels from 5 percent to 2.5 percent. Such initiatives should see India becoming more digital or tech enabled.
Fix These Issues Too
However, there were a few issues left unaddressed in the Budget proposals. Despite their growing popularity and increasing adoption, policy and regulation measures relating to TDS on Virtual Digital Assets such as cryptocurrencies were left untouched.
While a number of reductions and exemptions such as basic customs duties were given to boost overall manufacturing and productive capacity, there was an expectation relating to reduction of GST rates for startups which were not met. GST has a direct impact on the consumption of services and goods and a reduction in the rates would have given a boost to the startups by fueling consumption.
Disparity in the Long Terms Capital Gains (LTCG) tax rates applicable for unlisted and listed shares has been a long standing issue that still remains unresolved. Tax implications such as LTCG on sale of ESOP/ Unlisted shares were also not discussed. No tax benefit or exemptions were provided for those who take the risky bet of investing in early stage startups such as Angel Investors. Such tax benefits can help position startups as an attractive asset class and mobilise capital into the early stage ecosystem which has a huge multiplier effect on the growth of the economy.
But overall, in terms of entrepreneurship, the Indian Government is already at the forefront of promoting a number of new measures to solidify India's position as the world's economic leader.
Sanjay Mehta is Founder and Partner, 100X.VC. Views are personal and do not represent the stand of this publication.
