February 26, 2015

What Start Ups Expect From Budget 2015-16

The entire nation expects a kick start in the economy with the upcoming budget on Feb28.  The 2015-16 budget is one of the most awaited happening this year, as it will set the agenda, plan and future of Modi administration in India. It’s more important than last year because, it can lead the nation to a ‘transformational’ economic growth or continue with current scenarios. It’s with this budget that the BJP Government will justify the choice of all Indians made in May2014.
With the focus being on start ups, this budget has a far reaching effect on the industry, economy and global market.
In India, start ups create employment, promote capital formation, balance regional development, reduced concentration of economic power, increase GDP and per capita. After the announcement of the Digital India campaign, start up sector believes post 28 February will be an arena of growth and development.

What do start ups  exactly hope from the budget?  Here’s a wish list of the startups from Union Budget 2015-16 based on Indianweb2:

1. Multi Window Clearance System: 
To establish a business, an entrepreneur in India needs more than a pair of shoes. He needs to run corner to crevice, office to office to inaugurate his new venture. Hence, this sector demands a look up on their long time demand of a single window or outlook to do with the permissions and allowances. In India there are twelve different ministries operating their own startup and skill development programmes. This industry expects an all in one association to do the proceedings of starting a business.

2. Taxation and Capital: 
Tax forms the crux of   any budget. The challenges for start ups in the tax payment are Minimum Alternate Tax (MAT), excise, service, octroi and VAT. In addition, the procedure to pay off and get a clearance is a time consuming process.The startup sector expects the government to look into this area. Along with reduction in rates, a simpler procedure can save time of the entrepreneurs to concentrate more on business.

Raising capital is definitely a critical and challenging part of the game. New initiatives and angel investment has to be encouraged.  Investment in start up should be taken care off at this point. The need is to make this unnecessarily long process  a hassle free single window clearance.

3.  Ease of doing business:
India has too many old and obtuse rules and institutions when it comes to start ups and businesses. . Along with private interveners, the government is quite rigid which ultimately has made the country carry a poor image in business sector abroad. So in this budget, the government needs to chalk out an immediate overhaul for this. The finance minister should frame a contemporary set of norms for startup work mechanism to work fair, fast and flexible.

4. Growth Scale

According to the Minimum Alternate Tax (MAT), an unlisted private company needs to pay MAT at 18.5pct of the company is making a substantial amount of income under the Information and Technology act. This badly affects the cash flow of the start ups. Start ups which end up in some profit, ends in a loss after paying this huge chunk and expect the government to look into this by making special provisions. Such feasibility in already implemented systems like Mat will facilitate the start ups to breathe and live their business.

5. Thinking Outside India:
The Software Technology Parks of India (STPI) under the initiative of the Government of India truly made information technology flourish in India. The government should take initiative for such plans or laws in case of the startup industry. These will protect them from all the infrastructural and regulatory hurdles. 

If on 28thFeb, Jaitley announces such a scheme, those can be synchronized with the Modi government’s Make in India campaign.

6. Exit Process

Alike the entry process, the exit process is equally hectic for companies in India. RBI or FPIB grants exit allowance and it is very complicated to get it. Foreign based Venture Capital firms wanting to invest in startups based in India are required to take prior approval from RBI or FIPB. This also disinterests many investors to be a part of the startup business in India. If the government addresses these issues in this budget, it will create a real favorable situation for the start up makers.

7. Par with Rs. 10,000 crore startup fund declared in 2014’s budget –

As it had to be, though declarations were made hardly cash was not released in real sense. Neither did the government speak out about how the amount will be used by the government.

Start ups have two views o how the amount can be used-

- One-promoting entrepreneurship in universities and colleges.

-Two-promoting financing in the form of quasi-equity, equity and various other forms of risk capital.

The National Association of Software and Services Companies (NASSCOM) highlights some recommendations for budget 2015 for startup companies. They are:

  • Incentives for startups and SMEs
  • Addressing tax challenges faced by startups and SMEs
  • Encourage growth of ecommerce
  • Policy revisions

28th February will answer to all these high hopes.

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