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No giant leaps by FM, only baby steps, feel startup

Top executives ET spoke with said that while focus on solving issues surrounding farming, logistics, and intellectual property could have a positive impact on startups in the country.

Last Updated: Feb 03, 2020, 08.34 AM IST
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The lack of focus on stimulating consumption in an economy that is in doldrums has investors concerned.
Bengaluru | New Delhi: The Indian startup community sees this year’s budget proposals as an underwhelming response to what the sector needs. Top executives ET spoke with said that while focus on solving issues surrounding farming, logistics, and intellectual property could have a positive impact on startups in the country in the long term, several pressing issues have been given a miss.

“The Budget was a step in the right direction, but these are just baby steps for an economy that needs giant leaps to become an innovation hub,” was the response of iSPIRT, a think tank for India’s software products companies. This mirrors the sentiment of at least 10 other top executives across roles in the ecosystem.

While major issues such as ESOP taxation, setting up of a single investment clearance window, and raising the threshold for turnover to be eligible for tax exemptions from Rs 25 crore to Rs 100 crore were touched upon, the industry largely felt that these fixes either had a very narrow scope or were too little to yield any significant impact.

“ESOP taxation change, in its current form, applies only to around 200 startups recognised by the IMB (Inter-Ministerial Board), thereby, severely restricting its scope. It is only fair that all DPIIT-registered startups enjoy the benefits of the proposed changes equally,” iSPIRT wrote in its blog post.

Several others, such as community platform LocalCircles, investors such as Siddharth Pai of 3one4 Capital, industry bodies such as IndiaTech and many entrepreneurs and VCs voiced their concerns over the ESOP tax deferment mechanism. They said several other critical demands of the Indian startup ecosystem were not addressed.

Venture capitalist Rehan Yar Khan from Orios Venture Partners also highlighted that no tax parity for unlisted exits, and no permission for provident funds and pensions to invest in venture capital hurt the ecosystem.

Separately, the lack of focus on stimulating consumption in an economy that is in doldrums has investors concerned.

“There is nothing different. The middle-class tax breaks may give rise to some consumption, but at the cost of savings. And savings formation has been the underlying bedrock of our economy. This isn't the best way of creating consumption and demand,” said Anand Lunia, founding partner of venture capital firm IndiaQuotient. IndiaQuotient is an early backer of digital lending platform LendingKart and social network startup ShareChat.

Small and medium businesses that generate the bulk of their business from online channels were also disappointed with the government’s decision that mandated marketplaces, including Flipkart, Amazon, Uber, Ola and Urban Company, to deduct 1% TDS at the time of credit payments.

“This is the biggest negative,” said Manish Chowdhary, cofounder of WOW Skin Science, a consumer internet brand that generates the bulk of its sales through online channels.

“Online (platforms) gives so many new opportunities to so many new-age business... the govt should encourage these businesses instead of going backwards,” he said.

At least four other brands that ET spoke with mirrored this view. This will lead to working capital crunch in an already credit deprived market, they said.

While most of the people ET spoke with said they were not excited about the startup related policy measures of the government, they said they were more positive about the government’s focus on the middle class and farmers who could turn the economy around.

“There has been a focus on infrastructure, logistics, rural economy revival, launching of farmer-focused schemes, but, for example, help for NBFCs to stimulate greater lending has to be improved. That remains a concern,” said Sujeet Kumar, cofounder of B2B startup Udaan.

Others also highlighted that the focus on logistics and manufacturing will have a longterm positive effect on the ecosystem, including some startup businesses.

“National Logistics Policy is a constructive move,” said TA Krishnan, CEO & Co-founder, Ecom Express. “Creation of single-window clearances ..is another step, as logistics is important and will act as a catalyst in driving economic growth,” he said.
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