Budget push for startups, digital economy

India’s burgeoning startup and technology space is expected to benefit from a raft of Budget proposals announced on Tuesday. The Budget seeks to implement measures to boost startup funding, support the growth of fledgling firms, several of whom have been battered by the pandemic by widening the coverage of incentives and strengthen the digital ecosystem.

The Budget presented by finance minister Nirmala Sitharaman mentioned emerging technologies like drones, animation, gaming, deep and clean tech, underlining the growing relevance of the space that has created a record number of unicorns, attracted billions of dollars worth of investments and opened up wide job opportunities. Some 6.6 lakh direct jobs and 34.1 lakh indirect jobs have been created by startups between 2011-2021, showed a recent study by Nasscom and Zinnov.

“The Budget has addressed in some measure the long standing issue of bringing parity in capital gains tax across listed and unlisted equities. Surcharge on long term capital gains (LTCG) on any assets to be capped at 15% will galvanise family offices, UHNIs to allocate more capital to this asset class and thus lead to the unlocking of a larger pool of domestic capital for startups,” says Nimesh Kampani, co-founder & CEO at Trica, a unified platform for UHNIs, HNIs and family offices to invest in startups.

Amarjeet Singh, partner and national lead, emerging giants and startups at KPMG India, says that the reduction of surcharge on long term capital assets to 15% will also help investors in startups to reduce their overall exit cost.

Deena Jacob, co-founder and CFO at Google-backed fintech startup Open, says the one-year tax incentive extension for startups will ease the “pandemic burden faced by many in industry.” The move will enable firms to meet their capital working requirements during initial years of operation, adds Chitresh Sharma, CEO & co-founder at Refyne.

Besides, the creation of an expert committee for private equity and venture capital regulations will ease the friction between capital allocators and regulators, leading to more certainty and the creation of a mutually beneficial regulatory regime, opines Siddarth Pai, founding partner at 3one4 capital and co chair regulatory affairs committee at Indian Private Equity & Venture Capital Association (IVCA). Pai describes Budget 2022 as the “Digital India budget.”

Funding for startups nearly tripled to about $30 billion in 2021, data earlier sourced from market research firm Tracxn showed. Over 40 local startups joined the elite unicorn club last year amid a funding frenzy on the startup street. Tiger Global and Sequoia Capital made the bulk of the VC investments across series C financing rounds and beyond in the previous year. The Economic Survey stated India currently has 83 startup unicorns with a total valuation of $278 billion.

Experts say that the growth push for the digital economy will enable more new-age businesses and entrepreneurs. For instance, the proposal to set up 75 digital banking units in 75 districts, enable online transfer of funds between post office accounts and bank accounts will widen the digital payments ecosystem. “The D2C sector gets a boost from the focus on fintech and digitisation,” says Vivek Gupta, co-founder at Licious.

Digital rupee using blockchain technology will lead to stable regulated payments, settlements and lower transaction cost. “This initiative is expected to boost the digital economy and reduce leakages by lowering dependency on cash,” says Rajosik Banerjee, partner and head-financial risk management at KPMG India.

The thrust on digital learning has been one of the key takeaways of the Budget. The proposed digital university with a personalised learning experience will make higher education more accessible and equitable, says Byju Raveendran, founder and CEO at BYJU'S. “I have always maintained the digital learning gap is easier to bridge than the physical learning gap. The plan to connect all villages with optical fibre by 2025 is a welcome step.”

Gaming startups welcomed the proposal to form an animation, visual effects, gaming and comic (AVGC) task force. Vishwalok Nath, director at World Esports Cup, hopes that the task force can help promote the creation of a robust infrastructure for game development. “We are also looking forward to the 5G spectrum auction this year. 5G can further promote the latest innovations and mass adoption of technologies like cloud gaming in the country,” says Nath.

In an indication of a clear push for the usage of drones, the Budget has made a pitch for the use of Kisan drones for varied agricultural applications. Vikram Singh, CEO and co-founder at drone delivery company TechEagle, says Kisan Drones should also involve improving healthcare access in rural and remote India with the help of drone-based medical item delivery, as well as delivering agricultural products from farm to warehouse for better pricing and transportation. “This will aid in the mainstream adoption of drone technology,” says Singh.

Mughilan Thiru Ramasamy, CEO and co-founder of Skylark Drones, adds that the introduction of 'Drone Shakti' will ensure business momentum and drive faster adoption of UAVs in the country. “India with its vast natural resources spanning from agriculture, minerals, and great infrastructure is finally getting the much-required momentum to become digital,” says Ramasamy.