The Indian startup sector is in the midst of a revival after a tough couple of years. And companies want finance minister Arun Jaitley’s upcoming budget to help them decisively change tack.
In conversations with more than a dozen startups, Quartz discovered that entrepreneurs seek support in the union budget that Jaitley will present on Feb. 01 in tackling a range of issues. From tax breaks to lower compliance overheads to relaxed loan procurement processes, there was one broad theme to their demands: lowering their financial burdens.
Here’s a compilation of their many asks:
There is a need for ”a reduction of tax deducted at source (TDS),” Bishakha Bhattacharya, senior director and head of public policy at India’s IT industry trade body, Nasscom, told Quartz. It “impacts the profitability at small companies,” she said.
Last year’s budget sliced the TDS for business process outsourcing (BPO) firms from 10% to 2%. Bhattacharya hopes the courtesy will now be extended to other segments of the IT industry as well.
“Lowering income tax slabs for startup employees” could also help startups curb costs, Sandeep Das, co-founder and CEO of food delivery firm Scootsy, said.
Others like Kiran Kalakuntla, founder and CEO at health tech startup eKincare, hoped for “favourable taxation for startups” by addressing the elephant in the room: angel taxation.
Early-stage funding of startups fell 53% in the first seven months of 2017. This was partly because of angel taxation, Nasscom chief R Chandrasekhar told BloombergQuint last November. Angel tax is levied on funds raised by an unlisted firm by issuing shares at a price higher than the fair market value (FMV). The catch, though, is that this tax applies only to domestic investors, not foreign ones, Chandrasekhar said.
“Angel tax should be abolished…this money is going towards setting up new businesses, gives employment, new revenue generation streams, gives the government taxes eventually,” said Satyam Kumar, co-founder of LoanTap, a fintech platform that provides retail loans to salaried individuals. ”If you’re not giving positive tax breaks, it should not be penalised at least.”
A survey by social network LocalCircles showed that Indian entrepreneurs, startups, and small and medium enterprises (SMEs) believe that the angel tax should not exist. Among 4,428 respondents polled in mid-January, 57% said the upcoming budget should do away with it. “Startups believe that a genuine startup, raising capital from a genuine investor, must not be penalised for the same,” the survey noted.
In the last budget, the government had agreed to recognise and exempt innovative startups, but the approval process for this exception is confusing and tedious. ”The criteria for judging whether a startup is truly ‘innovative’ is causing all the harassment,” Tushar Vashisht, the CEO of digital weight loss platform HealthifyMe, said. ”It needs to be made more objective, currently it is too subjective.”
Offering loans at lower interest rates for entrepreneurs investing lower amounts of money—say, under Rs1 crore—would go a long way in encouraging new businesses, said Deep Lalvani, the founder of Be.The Solution, a curator of women-centric personal hygiene products.
The recent attempts to formalise the economy through measures like the GST (goods and services tax) and Aadhaar can also enable smoother credit facilities. ”Encouraging lending, based on GST data, would be a step towards this direction,” said Amit Sinha, COO at Paytm Mall, the e-commerce platform under India’s largest digital payments firm, Paytm. “Allocating a budget to facilitate small-value lending without excessive documentation can further help small businesses.”
Beyond finance, a new business also has to jump through many hoops before it is up-and-running.
Starting up in India today involves getting clearances from a multitude of authorities, including the Securities and Exchange Board of India (SEBI) and the Reserve Bank of India (RBI). This drains both time and money.
“A true single-window company setup, registration, tax registration would be incredibly helpful to entrepreneurs looking to get a business off the ground,” said Malika Datt Sadani, co-founder of New Delhi-based The Moms Co, a personal care startup for mothers and infants.
Kalakuntla of eKincare also wants “fewer registrations, faster licensing, fast-tracking of approvals, and the overhauling of the banking system and credit facilities.” The government, he said, should “create separate legal systems to resolve dispute cases for small and medium enterprises (SMEs) and reduce the time it takes to get bank loans.”
But then, there is the next big problem: infrastructure.
A better foundation
The government has largely focused its efforts on boosting tangible products like e-vehicles, but the digital ecosystem is still in need of a helping hand.
“(The) government should allocate resources for infrastructure that can enable the new age digital economy, e.g. high speed internet availability, high quality physical infrastructure, open platforms for consent-based information sharing and access, transparency in governance, etc.,” Amit Sachdev, co-founder and CEO of online lending platform CoinTribe, said in an e-mail.
Another startup founder, Samara Mahindra of the founder of The CARER Program, wanted special economic zones for start ups. Her firm focuses on post-cancer care and well-being.
Last year, the Narendra Modi government allocated over Rs17,000 crore under the Skill India Mission. Unfortunately, it has failed to move the needle so far. By June 2017, the government had dropped the target of upskilling 400 million Indians by 2022 and has since stayed tight-lipped about a new aim. Entrepreneurs, though, remain optimistic about the government’s role in enabling more startups and jobs.
With loan assistance from the World Bank, the Indian government is focused on getting the youth job-ready through programmes like the Skills Acquisition and Knowledge Awareness for Livelihood Promotion (SANKALP) and Skill Strengthening for Industrial Value Enhancement (STRIVE), Jayant Krishna, executive director and chief operating officer at the National Skill Development Corporation, told daily newspaper The Hindu.
Applauding the government’s efforts, Ritesh Agarwal, founder and CEO of hotels brand OYO, said, ”We are hopeful that this momentum continues and there’s ample availability of skilled talent in the country.”
If the government offers online vocational training degrees, quality talent could be made available at scale without burdening startups with the costs of training, said Santosh Thangavelu, senior vice-president and head of IT talent supply chain solutions at recruitment firm TeamLease Services.
“The budget should also encourage more incubators, accelerators, angel investments, and venture capital,” Mumbai-based angel investor Siddharth Ladsariya said. This will help tap into young talent and create support systems to help them flourish.
Many startup founders are calling for allocation of resources towards girls’ education and women’s entrepreneurship as well.
For instance, the government could extend additional benefits to companies hiring the disabled or having 50% women employees, LoanTap’s Kumar said.
Despite a SEBI directive, deadline extensions, and penalties, many companies are still non-compliant with the mandate of having at least one woman board member. In other cases, nepotism has weakened the rule. Still, the playing field is becoming more level. Five years ago, the share of woman startup entrepreneurs was 2%, Nasscom data show. Today, it’s close to 10%.