All eyes on the Budget 2023 for Start-ups Growth

Countdown has begun for last full budget of Narendra Modi 2.0 government and wish lists are pouring in by the day; Indian start-ups have a few up their sleeves from tax exemptions, financial assistance to sector specific regulations

India is next only to the US and China when it comes to being home to start-ups ecosystem. The fifth largest global economy, which aspires to be a USD 5 trillion economy soon, has been witnessing an exponential rise in numbers of start-ups. According to some reports, in 2022 alone, the number of start-ups that were recognized by the Department of Promotion of Industry and Internal Trade (DPIIT) were close to 20,000. This is a huge year-on-year leap from just a few hundred in 2016.

Market and consumer data company Statista, in a data published on its website, reported 461 startups in India in 2016. In 2021 it went up to a record high of 20,160 with minor corrections in 2022. As of 2022, the total number of start-ups recognised by DPIIT was 80,152.    

India’s clout as a technology start-up hub is growing by the day and this role will remain important as to how the country progresses economically. India is currently home to over 108 unicorns and its rise is nothing short of exemplary. The appetite among the youth to be their own masters and also create job for others, has been growing. An enabling ecosystem will take this even further and the government is not just mindful of this but has also been acting as a facilitator.

The Union Finance Minister Smt. Nirmala Sitharaman will present the Budget 2023 on 1st of February and the sector is pinning many hopes from the government.

According to some media reports, the government is likely to further strengthen the start-up ecosystem by addressing inverted duty structures in certain sectors, especially those in the manufacturing domain. Under the inverted duty structure, taxes on inputs are higher than finished the products. The structure has been one of the major reasons of cost escalations for manufacturers back home. There has been a planned and overt push by the government to promote manufacturing in India.  

Currently, schemes like the Startup India programme, the Fund of Funds for Startups (FFS) scheme, Startup India Seed Fund Scheme (SISFS) and Credit Guarantee Scheme for Startups (CGSS) are in place to cater to the fund requirements of businesses at various stages of the business cycle. Startup India initiative was launched in January 2016 with a view to encourage private investments and enable an ecosystem to give the much needed push to the sector.

In the previous budget, the government extended the period of incorporation by one year up to 31st of March 2023 making start-ups eligible for tax incentives. Eligible start-ups established before 31st of March 2022 had been provided a tax incentive under section 80-IAC of the Income Tax Act for three consecutive years out of ten years from incorporation. The step was taken in view of the Coronavirus pandemic. An extension of this incentive is being sought by start-ups in this budget. 

In 2019, the government also introduced a concessional corporate tax regime, where companies registered after 1st of October, 20219 were required to pay just 15 per cent as corporate tax. The concession was extended by a year to 31st of March 2024 in the Budget 2022. The government may extend the deadline by another year, this time too. The original deadline was to end on 31st of March 2023.

Another expectation that is gaining ground is the removal of custom import duties on metal scrap that could be beneficial for the domestic metal recycling industry which relies on import of metal scrap as a key input for its operations.

The technology sector is also looking at some guidance on regulatory and policy reforms in the areas where consumer data is involved. This has been a matter which has lingered for years. Technology platforms like fintechs, ecommerce websites and market places are looking forward to some concrete movement in this front. The industry also seeks a government handholding in terms of financial assistances.

Fintechs also see a lot of potential in rural areas of the country which are financially underserved and want tax sops to widen their penetration. Financial inclusion has been one of biggest pushes from the incumbent government coupled with it putting its weight behind digitization. 

With growing disposable incomes and awareness about nutrient-based products people are not depending just upon staples for their nutrient requirements. It is a sector which is only growing by the day. Policy and financial interventions could give this sector a much needed push. While established players have head-start advantage; deeper pockets, wider distribution network and higher capacities, the start-ups need a push to compete in this dense space. A Production Linked Scheme (PLI) could be big starter.

The government has shown its intentions to support emerging sectors like drones and private defense industry and these are bearing good results.

A lot of small companies are becoming big disrupters in different areas and it only augurs well to support them.

We can expect some fireworks from the government in various walks of life and expectations are nothing short of exemplary.     

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