Startups’ Budget wish list

The Indian economy faced a tough time last year. The country’s economic growth during the July-September period slipped to 4.5%—the slowest pace since 2013. The economic slowdown has led to a decline in domestic sales, job cuts across sectors, and trust deficit among investors.

There’s a lot to fix as finance minister Nirmala Sitharaman readies to present the annual Budget 2020 on February 1. Besides large corporates and industry players, the startup community is eager to see what the government has in store. This will be a crucial Budget for the Narendra Modi-led National Democratic Alliance (NDA) government, which returned to power in May last year.

This year, experts say, there is much anticipation around sectors such as real estate, telecom, and banking, financial services, and insurance (BFSI), as India aligns itself to hit the $5-trillion (economy) mark by 2024. Startup founders Fortune India spoke to also expect some strong policy action in this year’s Budget.

Take, for example, India’s food-tech industry which has witnessed hyper-growth in recent years with companies such as Naspers- and Tencent-backed Swiggy, and Alibaba-backed Zomato raising billions of dollars from global investors.

Sandipan Mitra, CEO and co-founder of HungerBox, a B2B food-tech startup, believes the food-tech industry is a microcosm of a ‘Digital India’ idea that the NDA government has been pushing.

Mitra explains that the value chain of the food-tech business—which includes sourcing, cooking, ordering, delivery and consumption—all benefit from technology enablement. Current food-tech players are only focussing on the ordering process, while many of the food partners [in the B2B space] are small and niche players who do not have access to funding to make their processes cost-efficient.

“Banks and non-banking financial companies (NBFCs) should offer a lower rate of interest on loans to such small players who are using digital platforms for their transactions. If this incentive is introduced, more food partners would be keen on digitising their operations on both micro and macro levels,” said Mitra, adding that access to debt financing should be further opened up for food-tech players, especially for their capex needs.

Amit Gupta, co-founder and CEO of Yulu, a bicycle and electric scooter rental startup, feels it is important to create a framework for making debt capital available to electric vehicle (EV) startups.

“The government and nationalised banks can come together and support startups and companies in the segment. We request the government to consider loan guarantee schemes and urge banks to lend to EV manufacturers and operators, with parity on lending terms,” said Gupta, adding that “startups offering mobility as a service using electric vehicles are mandated to charge 18% goods and services tax (GST) on their revenue; rather we propose parity with GST chargeable to original equipment manufacturers (OEMs) on their EV revenue (5%).” Last year, Yulu raised $8 million (approximately ₹57 crore) from Bajaj Auto.

Meena Ganesh, managing director and CEO of Portea Medical, a home healthcare provider, pointed out that last year the focus on healthcare was missing in the Budget. “We look forward to the government addressing India’s primary healthcare ecosystem, access to better services and infrastructure, and focus on skilling manpower in this sector. There is also a need to integrate home healthcare into the mainstream to realise the goal of affordable healthcare for all,” she adds.

The healthcare industry in India mainly comprises hospitals, diagnostics, medical equipment, pharmaceuticals, telemedicine, and health insurance. India Brand Equity Foundation, a resource centre under the commerce ministry, expects the industry to grow to $372 billion by 2022 from an estimated $160 billion in 2017.

In January 2016, the NDA government announced the country’s first-ever startup policy, which made available a $1.5-billion fund for startups and provided tax breaks for them and their investors. Then there has been the Digital India initiative with IndiaStack, a unified payments interface (UPI), and BHIM, a mobile payments app developed by the National Payments Corporation of India, which have helped create a digital economy that has benefitted e-commerce startups.

Dhiraj Agarwal, CEO and co-founder of fashion startup Campus Sutra, pointed out that in terms of ease of doing business, there were measures announced by the government in the past that have helped in improving the overall rankings globally. “But the challenge is in strengthening it and cascading it down to the level of the authorities who are actually responsible for implementation.”

Agarwal expects this year’s Budget to address certain tax structures that will have a direct impact on the apparel business. “Correct the inverted duty structure that is having adverse effects on the industry. With the inverted duty structure, the GST input (that we expect to receive) keeps ballooning and is present in our books but we can’t really claim it and it ends up being higher than the GST output we receive,” he said, adding that “the Reserve Bank of India has been reducing the repo rate but it was not passed on in full by the banks. This has major implications on the cost of capital, especially in a globalised economy where we are seeing a lot of competition from Bangladesh and China.”

Kashish Jhamb, executive director and CEO, City Innovates, a tech startup in the digital marketing space, feels it would help smaller companies if the government simplifies the tax regime in terms of filing returns. “The government should give us the liberty of filing returns quarterly for a company with a turnover of less than ₹1 crore. However, at this point in time, this should be also applicable to companies having turnover between ₹3 crore and ₹5 crore.”

Jhamb also expects the government to lower corporate tax for young companies with a turnover of less than ₹5 crore. “Today it is in the range of 25%-28%, which is very difficult to sustain for a new company,” he adds.