Budget 2019: Nurturing startups play a critical role

Incremental improvements rather than a bold big bang approach which would allow the economy to grow towards the goal: Mudasar Mohamed

Although an Angel tax policy was previously propagated, its implementation left much to be desired with many start-ups and angel investors reporting unfair taxation.(File Photo)

By Mudasar Mohamed

The government recently announced an ambitious goal for the India economy to grow to 5 trillion $ by 2024. It’s against this backdrop that I feel the budget announced today has allowed for incremental improvements rather than a bold big bang approach which would allow the economy to grow towards the goal. The Indian economy will need to grow at 8% plus over the next several years and the creation, incubation and nurturing of start-ups will play a critical role in achieving this goal. Secondly, a continued focus on transportation and logistics sector will act as a critical launch pad for the India economy and as such, the government will need to continue to focus on clearing bureaucratic obstacles and focus on implementing some key initiatives announced in today’s budget. 

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Key budget/policy observations for startups:

  1. Existing Know Your Customer norms for foreign portfolio Investors and foreign entities setting up shop in India to be rationalized and simplified. It is critical that the first step of job creation – the creation of a company itself is a seamless process. Glad to see the government recognise the need for simplifying KYCs.
  2. Angel taxation: Start-ups depend on Angel investors to fund their businesses. Although an Angel tax policy was previously propagated, its implementation left much to be desired with many start-ups and angel investors reporting unfair taxation. In today’s budget announcements included a mechanism of e-verification which will be put in place whereby start-ups and founders who make necessary declarations will not be subjected to further scrutiny. The implementation and smooth functioning of this initiative remain to be seen.
  3. ESOPs: Need to streamline and simplify processes and taxation around setting up and issuing ESOPs. Firstly, there are a lot of legal and corporate compliances required to set up ESOPs in India. Secondly, ESOPs are subject to double taxation which makes them less appealing. The first tax implication is at time of allocation of ESOPs and second at the time of redemption/sale of the ESOPs by the employee. The budget did not specifically address policies for simplifying ESOPs and I hope this important area is looked at. 
  4. TV Channels exclusively for start-ups: A new channel is proposed to be started under Doordarshan bouquet to provide a platform for start-ups to disseminate information in the industry. Good platform for founders to spread the word on their journey and hopefully inspire the next generation of entrepreneurs. 

Key budget/policy observations for Transportation and Logistics:

  1. Creation of One Nation- One Transport card: Great initiative to further digitise payments and cashless transactions. A practical use case for the transport industry could be that truck drivers can use this card for paying at Highway Tolls and avoid cash transactions.
  2.  Incentives for electric vehicles: The government has allocated Rs 10,000 crore for faster adoption of electric vehicles and has announced upfront incentives for electric vehicles. This will help attract investment for manufacture and ensure clean energy over time. 
  3. AI/Big Data/Robotics: While the budget made mention of the importance of these skills, policy and budget remain unclear.
  4. Road Infrastructure: Was good to see the continued focus on improving the road infra with a commitment to a comprehensive restructuring of National Highways Programme and on rural roads.

(The author of this article is the Chief Operating Officer and Co-Founder of Ezyhaul)

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