With the budget announcement for the year 2015-2016 around the corner, all eyes are set on Finance Minister Arun Jaitley and what all he has in store for the citizens, companies of the country. Every industry and citizen of India expects something in the budget which will help them/him grow strong financially. Whether the designer briefcase is able to stand on their expectations is something which we will have to wait and watch. The new government’s first budget last year gave a ray of hope to all young entrepreneurs as it announced a sum of Rs. 10,000 crore to boost capital growth in small and medium enterprises (SMEs) and startups in the country. What magic does the designer briefcase unfolds this year for the startups can only be seen on 28th February.
We at IndianWeb2 have put together a list of top 8 things the startup sector can expect in this year's budget.
- Making starting up easier - The current procedure for starting a business requires the entrepreneur to run from corner to corner, office to office in order to get all the approvals, clearances and licenses for his new venture.The sector has been long demanding the setting up of one single window for all these approvals, so that the entrepreneurs can concentrate more on his business and less in running around.The sector hopes to get its long withstanding demand of a single window getting fulfilled in this year's budget.Young Entrepreneurs were quite encouraged when the Ministry of Entrepreneurship was set and there's for sure a need for someone to give this idea a push. In India there are about twelve different ministries operating their own startup and skill development programmes and there is an extremely urgent need to bring all these programmes, schemes etc. together so that they can prove to be effective for the industry.
- Capital problem - While things have surely changed for good, entrepreneurs still face a hard time raising money for their new venture.The startup sector expects the budget 2015 to make capital more accessible and affordable for new businesses.Angel and venture investments needs to be encouraged in the country and there's an urgent need to sort out the issues surrounding the angel tax.Currently, the venture capital firms have to deal with three set of regulations for their each and every move.These are- CBDT Guidelines for Venture Capital Companies, 1995, Guidelines for Overseas Venture Capital Investments issued by the Department of Economic Affairs of Ministry of Finance in the year 1995 and Security and Exchange Board of India( SEBI) 1996.Each of these above said regulations come with their own set of rules and regulations that make it very difficult for a venture capital to follow. For an investor, time is money and the Venture Capital investors end up wasting a lot of their time fulfilling each and every rule and regulations set by these above said three regulations. The startups would be hugely benefited if the government is able to consolidate all these three regulations into one single regulation of SEBI.
- Growth Scale - One of the primary concerns that startups have nowadays is the Minimum Alternate Tax (MAT). According to the current directions, an unlisted private company needs to pay MAT at 18.5% if the company is making a substantial amount of income under the Information and technology act, but may not be showing profits on paper when income is calculated according to the rules under the Companies Act. For Startups this becomes a major hurdle as they have to pay a huge chunk of their incomes in taxes when they could have used the money to expand their businesses. Further, there are startups who are not making any profit at the moment but end up incurring loses due to taxes that they have to pay. This ends up affecting the cash flow of these startups.The budget this year can help such startups by making special provision of MAT for startups. The government can make special provisions where the startups don't have to pay MAT for an initial period of five years or make the top line 25 Crores. Such provisions will provide startups enough space for breathing to grow and set their business.
- Thinking outside India - The Software Technology Parks of India (STPI) scheme played a major role in the initial success of India's Information and Technology industry. The government needs to introduce such STPI like schemes for startups in order to encourage entrepreneurs to come with more and more unique ideas and startups.The STPI scheme initially provided the new IT companies with physical spaces to work. It later went on to provide statutory support and good infrastructure facilities to technology based companies. There's an urgent need for such a scheme for all the startups (not just IT companies) and ring fence these new businesses in order to protect them from all the infrastructural and regulatory hurdles. All these schemes can also be synchronized with the Modi government's Make in India campaign.
- Ease of Business - India as a country has a very bad image internationally when it comes to doing business in the country. All the successive governments haven't been able to much about the issue but the Narendra Modi government seems to be promising. Most of the regulations and rules that one needs to follow to run a business in this country are mainly old and obtuse. There is an urgent need to change these archaic rules according to current situations and scenarios. Manufacturing startups particularly find it very hard to survive as the powers of an inspector makes the acquiescence cost very high.Different taxes like VAT, excise, octroi and service only add up to the startup's troubles as they find it extremely difficult to come in terms with the complexities at play. This budget, the government mantra should be rules and regulations that are easy to identify and follow.
- Ease of Exiting - If opening a business is difficult in India, it is approximately ten times more difficult to close a failed business venture. As a country India should make sure that if an entrepreneur fails in his/her venture, he is able to close his venture without much difficulties and start afresh. The existing process of exiting can be made so much easier if India's government focuses on digitizing it.In this age of technology when everything from booking tickets to mobile recharging can be done online, the government can make similar arrangements of filling documents for a new venture. This would make the lives of new entrepreneurs so much easier as they will not have to run from pillar to pillar to get the business started.
- Encouraging Risk Financing - There's a paradox situation at play here. Currently. the Foreign Institutional Investor (FIIs) registered with SEBI are allowed to freely invest and disinvest without taking prior approvals from FIPB/Reserve Bank of India.However, foreign based Venture Capital firms wanting to invest in startups based in India are required to take prior approval from RBI or FIPB. Same is the process when a foreign based investor is looking to sell his/her stake in a startup to a another foreign Venture Capital firm. Majority of the PE and Venture Capital firms operating in India are from foreign lands and such lengthy processes of approval makes it very unattractive for investors.
- A detailed outline of the Rs. 10,000 crore startup fund declared in last year's budget - While the government was able to gain much appreciation about its declaration of Rs. 10,000 crore startup fund in last year's first budget, much wasn't released about how the fund will be used by the government. According to some experts, the fund must be used for promoting financing in the form of quasi-equity, equity and various other forms of risk capital. While another school of thought believes that the money should be used for promoting entrepreneurship in universities and colleges.
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