Budget 2023: Hits and misses for startups

For startups, the budget has been a mix of hits and misses. The industry welcomed the announcement of the agriculture accelerator fund aimed at enabling agri-startups by young entrepreneurs in rural areas. Rajesh Rajan, CEO at Krishify is hopeful that the move will encourage a greater number of startups to emerge and scale up their solutions, fast-tracking innovation in the sector. "The government's support for digital public infrastructure will assist farmers in crop estimation and planning by raising awareness and facilitating higher-quality input," says Amit Sinha, co-founder of Unnati.

Adding to the growth of the fintech space, the budget has proposed to expand the scope of documents available in DigiLocker for individuals. Madhusudan Ekambaram, co-founder & CEO at KreditBee says the initiative will help enhance credit availability to micro segments by making credit evaluation and document verification easier for fintechs and other financial institutions. Digital payments, Sithraman said, continue to find wide acceptance. In 2022, they showed an increase of 76% in transactions and 91% in value. To enable innovation and research by start-ups and academia, a National Data Governance Policy will be brought out. This will enable access to anonymised data. "One of the key takeaways from this year’s Budget for the fintech sector are the Data Governance Policy and KYC simplification that will be definitive changers in the times ahead. I believe the policy will bring in an additional layer of privacy and trust for the ecosystem and enable start-ups and research entities to safely access non-personal data, and foster accelerated innovation and growth," says Harshil Mathur, CEO & Co-Founder at Razorpay.

The finance minister's move to extend the date of incorporation for income tax benefits to start-ups and provide the benefit of carry forward of losses on change of shareholding of start-ups from seven years of incorporation to ten years has been well received. "In recent years, the start-up ecosystem in India has expanded rapidly to emerge as a major driver of economic growth. The finance minister's proposal to extend the date of incorporation for income tax benefits to start-ups by another year is bound to further that progress and promote new entrepreneurial talent," Ritesh Agarwal, founder and Group CEO OYO Hotels and Home.

The budget, though somewhat futuristic in its approach to technology, has failed to accommodate the expectations of the broader startup community which had been hoping for proposals like a more liberalised ESOP framework among others. "The startup ecosystem was eyeing bolder moves to accelerate its growth momentum. But it seems that the current Budget is just another hit-and-miss. While the Hon. finance minister touched upon areas like skill-based training and special allowances for MSMEs and Agriculture Accelerator funds, more inclusive areas like higher Budget allocation towards the Startup fund, simplified tax regimes, and higher tax exemptions or higher relaxation on tax on Employee Stock Options (ESOPs) would have offered more rounded growth opportunities," says Mayank Kumar, co-founder & MD at upGrad. As we progress into the new financial year, startups would seek more frequent and strategic interventions by the government to add layers to the existing policies thereby, reducing the burden on entrepreneurs (early-age startups or soonicorns) who find it extremely difficult to scale their business or attract private funds, adds Kumar.

It would have been encouraging if the budget accommodated for an advisory on the PE/VC ecosystem. Easing of restrictions on domestic institutions like Provident Funds and NPS to invest in VC funds would have allowed for greater participation in domestic VC funds, which in turn, will help make patient and long term domestic capital available for AIFs, says Manu Rikhye, Partner, Merak Ventures. "The budget could have been a game changer if the government did not miss the opportunity for rationalisation of capital gains, taxation, especially for startups," says Rikhye.