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Budget 2017: Govt could do more for startups earning less than Rs 1 crore

Artboard-1-copy-4-8If I were in Mr Arun Jaitley’s place today, I would be looking out for Mr Arun Jaitley! He is good. So is our honourable Prime Minister, Mr Narendra Modi.

I don’t have much doubt about the present government’s motives / steps toward energising startups in India. However, what I am not sure is whether our government has a good grip on ground information and / or relevant data so as to develop a nuanced understanding of what it is to startup in India and the challenges thereof.

The government needs to understand that the real perspective / ground information of startup India does not lie with Indian e-commerce ‘behemoths’ that benefited from the mad gust of gazillion dollars invested by foreign investment shops between 2012 and 2015. The goalpost of such entrepreneurs and investors changes every day. Understandably so, their dystopian and ever-changing point of view emerges from selfish motives. Their clamour can’t be construed as real concerns of India’s hard working entrepreneurs.

As a matter of fact, the real issue around startups would come alive when one interacts with a bunch of Indian entrepreneurs, who make annual revenues of less than one crore rupees or thereabouts. That’s the sweet range in which most self-funded Indian startups die or struggle or are about to flourish. And, that’s where the Indian government should focus most on.

Instead of rebates / profit-linked deductions on calculations around number of years, the Indian government should let entrepreneurs experiment and fail umpteen number of times without taxing them till their revenues are less than one crore rupees or so. The mathematics of this ‘zero deduction’ startup phase has the power to eject India into a new orbit of innovation, discoveries and inventions. Implementing the above would take out subjectivity such as the number of years taken to achieve profitability, incorporation date, concession period, etc.

The filters to qualify for such super-tax holiday could be stringent with respect to the kind of inventive work a startup would have to undertake. This could also mean that the government might have to increase its three-member inter-ministerial panel to ascertain fairly and properly who would qualify for such startup sops.

I laud Mr Jaitley’s decision to give a five percentage point rebate to MSMEs (with annual turnover of up to Rs 50 crore) by taxing them at the rate of 25%, changing it from 30% earlier. In addition to the relief that would ensue for MSMEs (post their draught from demonetisation), the rebate is much needed to create maximum impact. Our MSMEs create bulk of jobs in India. Besides, this broad category of companies also forms more than 95% of corporate India.

Mr Jaitley and his team showed support by allowing startups to carry forward losses, thereby helping them take advantage of tax sops. I would have liked discussions around angel tax and total removal of the same for startups in India. There is a large drop in the number of angel investors in the country in the last several months. A tax on top of it doesn’t really help the cause. I appreciate Mr Jaitley’s decision to extend MAT to 15 years from the existing 10 years (though, it could have been completely scrapped for startups).

The emphasis on strengthening the digital payment ecosystem through Aadhar-based POS, broader incentives to use digital payments, encouraging lenders to underwrite loans based on digital user data, creation of Payment Regulation Boards, etc. are praiseworthy, and could become fasteners for startups operating in the financial technology space. However, it would be interesting to understand the specific plan of action that clarifies the role of existing / future financial technology startups that can create a cashless economy in India.

Even though this may not come under the typical Startup India Action Plan, I am personally enthused to see the allocation of Rs 10,000 crore for the Bharat Net project for rural India. I believe that our country’s biggest problem is the developmental gap between urban and rural India. This fund would hopefully solve and bring the two Indias together via technology / the Internet.

Finally, I congratulate Mr Jaitley, the finance ministry, and Mr Modi for bringing startups to mainstream India. I hope to see more concrete plans and sound execution in the future.

India has the potential to become a startup nation. It most probably will!

Anshuman Verma is the founder and managing partner at early-stage investment firm M1L. He was formerly a venture partner at VC firm Accel Partners. Besides Accel, he had worked with a number of other VC firms. He has led as well as advised investments in several early-stage tech and Internet companies.

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2 Comments

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Aditi Nandan February 2, 2017 12:56

Agree!
You point of view is absolutely correct regarding startups and their challenges in current scenario.
To be honest I’m somewhat happy with the budget as it’s trying to working on financial jurisprudence.What baffles me though is that reactions coming from all sides.

Saurabh Singh February 2, 2017 14:57

Thank you Anshuman for proposing new directions. We need people like you to address and mitigate the reals issues for Indian startups and government initiatives.

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