India's startup founders and venture capital investors are placing their hopes on Modi Government 3.0, anticipating ongoing support through favourable policies, funding boost, and the repeal of the angel tax after the BJP-led National Democratic Alliance won the Lok Sabha elections on June 4.
"We need urgent policy measures by the Government. I urge the government to repeal Angel Tax and set up a Rs 50,000 crore startup fund to boost the ecosystem," said Infosys cofounder and the chairman of VC firm Aarin Capital on X (formerly Twitter).
The government while announcing the Union Budget 2023 tightened the noose on foreign funding and mandated that the so-called angel tax regime, which will also apply to money flowing into Indian startups from abroad.
The angel tax regime was originally started in 2012 as an anti-abuse measure to prevent money laundering. It mandated that a startup’s fundraise from angel investors could be taxed whenever the funding round happened at a valuation more than the fair value of shares.
Tax authorities treat the premium paid by investors as income, taxable at about 31 percent.
Also Read: Explained | How a new angel tax provision has struck fear in startups, VCs
Industry executives are hopeful that the government will see reason and budge. Some of the founders and VCs are hopeful that the new government will continue to support the startup ecosystem.
After the results of the six-week-long Lok Sabha polls were announced on June 4, the BJP-led National Democratic Alliance (NDA) bagged over 293 seats, and the opposition bloc INDIA finished at 233. BJP failed to reach the majority mark of 272 and has added 240 seats to its kitty.
Going by the BJP's manifesto, the word startup appears 19 times and experts say that the government would focus on the sector to create an ecosystem for it to flourish.
"As India fortifies its global position, we hope the newly-elected government will ensure a favourable regulatory environment by simplifying regulations and compliance procedures for startups, making it easier for entrepreneurs to start and run a business in new sectors," said Nirav Choksi, CEO and Co-Founder of CredAble.
As Indian startups are looking to relocate their domicile back to India and benefit from India’s growing economy, ensuring access to funding opportunities for startups. This will position India as a hotbed of unicorn start-ups across different sectors, Choksi added.
Analysts and experts have said that the new government will push for manufacturing startups.
“We believe that the initial 100 days will be guided by the manifesto… we believe that there would be some populist agenda in between because of how the election panned out but that would not be at the expense of either the fiscal guidance path or capital expenditure,” said Elara Capital analyst Aditya Jaiswal.
An analyst with a top brokerage house said that the government would focus on startups that are in the manufacturing space.
This will lead to employment generation, a move to counter the opposition's allegation that the Modi government has failed to create enough jobs. Defense, drones, electric vehicles, energy transition, etc., will be the focus within this space, the analyst said.
Startups also hope that the new government will address certain challenges within the digital ecosystem.
"We expect the new government to facilitate further expansion of the digital ecosystem while addressing key challenges such as interoperability, policy frameworks, cybersecurity, financial literacy, and the digital divide. This will empower fintechs to provide out-of-the-box financial solutions to a broader audience, catalyse financial inclusion, and fast-track the adoption of AI and ML capabilities," said Rishabh Goel, co-founder & CEO, Credgenics
"Creating policy support to attract enormous investments in R&D to overcome the tech debt in these areas will be the first order followed by rejuvenating the Higher Education ecosystem," said Jaideep Kewalramani, COO & Head of Employability Business, TeamLease Edtech.
Key promises
BJP’s manifesto says that India’s top-tier startup ecosystem will be expanded to tier-2 and tier-3 cities. For this, the government plans to work with the private sector to expand the incubator network and link them with higher education institutes to promote entrepreneurship among students, the manifesto said.
India has already been established among the top three startup ecosystems through initiatives such as Atal Tinkering Labs, Hackathons, Startup India, and the Start-Up India Seed Fund scheme.
In Budget 2022-23, the government allocated Rs 283.5 crore for the Startup India Seed Fund Scheme. Launched on January 21, 2021, the scheme aimed to support approximately 3,600 entrepreneurs through 300 incubators over a four-year period.
Modi 3.0 is expected to expand this fund scheme as well as the Startup Credit Guarantee scheme. This expansion is intended to provide startups with ample funds throughout their entrepreneurial journeys.
Further, the government has plans to establish partnerships with globally recognised mentors, under the Atal Innovation Mission.
The manifesto also intends to strengthen the participation of startups in government procurement, particularly in departments like defense and railways.
There are plans to create a national geospatial data registry and geospatial data exchange. This initiative will provide industries and startups with access to innovative products and services, to leverage geospatial data.
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