Right push for start-ups

Amit Jain | Updated on March 02, 2021

But the sector needs more incentives to flourish

The Covid pandemic has forced us to rewire our expectations. It has forced us to differentiate between what we need and we want. More importantly, it has enabled us to think differently and find out-of-the-box solutions for everyday problems. It’s in situations like these that start-ups thrive. And, while the year that has gone by has been tough, the Indian start-up ecosystem has been resilient.

The Economic Survey gives us interesting numbers. As of December 2020, India was home to over 41,000 start-ups collectively employing nearly half a million. By solving problems creatively, 38 Indian start-ups have achieved unicorn status, igniting ambition in the rest. There’s immense opportunity for the world’s third-largest start-up ecosystem that’s on track to close in 2021 with an additional dozen joining the unicorn club.

Potential recognised

With the 2021-22 Budget, the Government has finally recognised the potential that start-ups bring to the table and their need for some breathing room following a difficult year. Doubling allocation to the MSME space to ₹15,000 crore and approving the ₹945-crore ‘Start-up India Seed Fund’ scheme are both indicative of that. A year’s extension in the tax holiday and capital gains exemption will prove to be beneficial for start-ups that have faced the brunt of the pandemic. Also, restructuring the angel tax, which would have gone a long way in enabling funding for promising enterprises, would have been welcome.

Finance Minister Nirmala Sitharaman has also proposed the incorporation of one-person companies with no restriction in paid-up capital and turnover. The provision to convert to any type of company later on is thoughtful too, further fuelling a budding entrepreneur’s confidence. By allowing NRIs to set up one-person companies, India’s unique talent pool will gain global expertise.

Concrete measures towards easing debt and enabling easy credit access for SMEs and start-ups would have helped boost confidence. Sure, banks getting recapitalised with ₹20,000 crore will enable room for increased credit. However, it remains to be seen how this trickles down to the start-up ecosystem.

That said, there’s a signal of intent in the form of raising the FDI limit from 49 per cent to 72 per cent in the insurance sector, with appropriate safeguards in place. This will spur on a lot of innovation in the digital insurance space. A similarly liberal policy being carried over to other key sectors such as fintech, edtech and e-commerce is key to unlocking their full potential.

Finally, setting up social security and minimum wage for platform/gig workers will positively impact over 15 million employees across the food, logistics and IT sectors. An outlay of ₹50,000 crore towards the National Research Foundation ensures creativity isn’t held back by a barrier of language. This is likely to benefit tech-intensive spaces. A sum of ₹3,000 crore earmarked for upskilling is welcome too.

The Government’s push for start-ups raising capital domestically is understandable. However, to reduce dependency on foreign capital, alternative avenues need to be promoted. This could include enabling direct investment from domestic institutions (insurance companies and pension funds) into start-ups, or encouraging retail investment. Friendly guidelines for IPO listing would further enable start-ups to raise capital domestically.

The final piece of this puzzle is a favourable environment for these companies to grow, and incentives that promote not just investment but also entrepreneurship.

The writer is Founder and CEO, CarDekho Group


Published on March 02, 2021

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