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A file photo of finance minister Arun Jaitley. Photo: Pradeep Gaur/Mint (Pradeep Gaur/Mint)
A file photo of finance minister Arun Jaitley. Photo: Pradeep Gaur/Mint
(Pradeep Gaur/Mint)

Budget impetus to help start-ups take off

Government announces Rs1,000 crore to enable IT start-ups create additional funding avenues for small firms and, in turn, generate more employment

Mumbai: If the big idea of Budget 2014, announced on 10 July, was clearly start-ups, the Bharatiya Janata Party-led National Democratic Alliance government took it a step further by announcing on Saturday an allocation of 1,000 crore to enable information technology (IT) start-ups create additional funding avenues for small firms and, in turn, generate more employment.

There are more than 3,100 product start-ups in the country, with over 800 start-ups being added annually, according to software lobby Nasscom. These start-ups have received over $2.3 billion (around 14,200 crore) in funding till date.

Finance minister Arun Jaitley, in his 2015 budget speech, also announced the setting up of incubation centres and measures to promote innovation, enhance skill development and ease norms of doing business in the country—all aimed at helping small businesses generate employment.

With an aim to create 100,000 jobs through start-ups, the government proposed the setting up of Self-Employment and Talent Utilization mechanism to provide technical assistance and incubation to start-ups. Jaitley underscored the “...need to support start-ups to turn youth from job seekers to job creators".

To be sure, the finance bill of 2014 did much for the cause of entrepreneurship. However, the government is yet to provide any specifics of its plans—to allocate 10,000 crore that would provide “equity, quasi-equity, soft loans and other risk capital for start-up companies"—that it announced in its July 2014 budget speech.

According to Ravi Gururaj, chairman (product council) and member of the executive council at Nasscom, “The budget allocation for start-ups may seem lower than before, but they are more realistic. Disbursement of 1,000 crore over one year will be faster and, hopefully, done more proactively. I think the government must look for co-investors and institutions as partners for disbursing the amount faster and efficiently."

The government in Budget 2015 also proposes a reduction in royalty and related taxes from 25% to 10% for technology start-ups, a move that hardware lobby MAIT, said was positive for the government’s “Make in India" drive.

Among the other positive steps, the government proposed the tax “pass through" should be allowed to both Category-I and Category-II alternative investment funds (AIFs), “so that tax is levied on investors in these funds and not on funds per se".

This, the government reasoned, will step up the ability of funds to mobilize higher resources and make higher investments in small- and medium-sized enterprises, infrastructure and social projects, and provide much required private equity to new ventures.

Gururaj said the “tax pass through for all funds under the AIF scheme will make it easier for easier flow of capital and allow all kinds of investors to benefit. Increasing the threshold for transfer pricing to 20 crore will allow start-ups to engage in small deals".

However, according to Saurabh Srivastava, co-founder of Indian Angel Network, the announcement is a “Big miss for start-ups. No resolution on Section 56, which taxes start-ups on investments they receive from angels if it is above fair market value". However, he said, the bankruptcy law reform will greatly help firms, especially start-ups, adding that while the 1,000 crore allocation for incubation of start-ups “is good...a lot will depend on deployment".

Another good step, said Gururaj, “is benefit of deduction for employment, which will help start-ups which typically have an employee strength under 100".

Sanchit Vir Gogia, chief analyst and chief executive officer of Greyhound Research, a technology research firm, said the budget is “basically a mixed bag".

He pointed to the “lack of clarity on the e-business portal, or for the 10,000 crore start-ups allocation announced in the last budget, or e-kranti... Basically there was a lot of direction, but little detail in the budget".

Digital India was another recurring theme of the budget.

In his 2014 speech, Jaitley had spoken about allocation for smart cities, an e-biz platform to integrate government departments, digital classrooms, introduction of e-visas, sops to encourage manufacturing of electronic goods, and increasing broadband penetration.

He had also proposed to allocate 7,060 crore to develop 100 smart cities and satellite towns in 2014, and set aside 500 crore for the propagation of broadband, IT hardware manufacturing and software development, with a special focus on software start-ups. Additionally, 100 crore was proposed for digital classrooms, especially in rural areas.

In his 2015 speech, Jaitley said the National Optical Fibre Network Programme (NOFNP) of 750,000km, networking 250,000 villages, is being further sped up by allowing “willing states to undertake its execution on reimbursement of cost as determined by department of telecommunications". He said Andhra Pradesh is the first state to have opted for this manner of implementation.

According to Jaideep Ghosh, a partner at consulting firm KPMG in India, the “Union budget traditionally does not focus on telecom sector". He added, though, that the “emphasis on speedy implementation of NOFN to provide connectivity to all villages would benefit the telecom sector as well as have a cascading impact on the economy".

India has to increase its broadband speed if it is serious about its efforts to implement digital services that define its Digital India vision.

The country, however, continues to define broadband as equal to, or greater than, 512 kilobits per second download speeds at a time when the US Federal Communications Commission has updated its broadband benchmark speeds to 25 megabits per second (Mbps) for downloads and 3 Mbps for uploads.

According to a 7 January report by the Telecom Regulatory Authority of India, there were 82.22 million broadband subscribers by November end.

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