Budget Day: What Startups Want From FM Nirmala Sitharaman?

Budget Day: What Startups Want From FM Nirmala Sitharaman?

SUMMARY

Amid falling funding and subdued investor sentiment, Indian startups are looking at FM Nirmala Sitharaman for some relief in today’s Budget

A key demand across the board is that of reduction in GST rates, clear regulatory policies, tax rebates and more incentives to spur startups

While drone tech startups want extension of the PLI scheme and further easing of regulations, EV startups want clarity on the FAME scheme and more incentives

Indian startups have had a tough couple of years. Be it capital drought or mass layoffs, the homegrown ecosystem has grabbed headlines for all the wrong reasons. With funding numbers continuing their free fall and investor sentiment at record lows, the Indian startup landscape is looking intently towards the interim Budget 2024.

Finance minister (FM) Nirmala Sitharaman will present the interim Budget today in the Parliament, ahead of the general elections scheduled for later this year. Indian startups are hopeful that the FM would provide sops and cut tax rates to rejuvenate the ecosystem and instil confidence among investors of the battered landscape. 

Inc42 spoke to founders across sectors and segments to understand their expectations from the government. A key demand across the board appears to be lowering of goods and services tax (GST) rates for Indian startups. Besides, the ecosystem is also hopeful that the Centre will streamline regulatory compliances and other bottlenecks that plague the industry. 

Let’s take a sector-wise look at the expectations of Indian startups from FM Sitharaman.

EV Startups Want FAME Clarity

The Indian EV ecosystem wants lower and standard GST rates on electric vehicles and other allied services. 

In addition, founders also want reduced import duties on cells and batteries as well as affordable financing options. Besides, they also want battery development, charging networks, and allied services in the EV space to be on the Centre’s priority sector lending list. 

EV industry stakeholders are also gunning for an extension of the FAME-II scheme or a new third phase of the policy to incentivise players in the emerging space. 

On the other hand, agritech players too are batting for reduced GST rates and higher agricultural credit target in this year’s interim Budget. Speaking to Inc42, Ninjacart cofounder and CEO Kartheeswaran KK urged the Centre to provide an interest subvention of 2% for short-term agricultural loans to spur the deployment of offerings by agritech startups.

“A key need is to incentivise investments in the sector to build durable, large-scale organisations in the food and agri space. This can be achieved by exempting long-term capital gains on private equity investments in the sector, which will promote innovation in the space,” said Waycool MD Karthik Jayaraman.

The agritech ecosystem also wants higher tax incentives for promoting emerging technologies such as AI and a higher fund allocation for National Innovations in Climate Resilient Agriculture (NICRA) in this year’s Budget.

Online Gaming Startups, Edtechs Pitch For Sops

The GST Council’s decision to levy 28% GST on online gaming startups has made the going tough for the industry. And the ecosystem wants a respite from the Centre in today’s Budget.

Online gaming startups want the government to spell more clarity on taxation policies. Besides, they are seeking a progressive GST regime, higher allocation for skill development in the gaming sector, and higher budgetary outlay for the AVGC sector. 

“The government should create a SEZ for game development with special incentives to promote and assist skill-building programmes in game design and development,” said Nitish Mittersain, MD and CEO of Nazara Technologies. 

Meanwhile, edtech startups continue to raise their recurring demand for lower GST on edtech services and allied hardware. The ecosystem also wants a strategic GST policy, tax rebates, higher allocation for government accelerator programmes and closer collaboration with the Centre. 

On the drone tech startups’ wishlist are extension of the PLI scheme for drones, further easing of regulations, and incentives for research and development (R&D). They also want faster approval processes for drone operations, especially those encompassing urban air mobility solutions.

“In anticipation of Budget 2024, the drone industry hopes for a boost with reduced interest rates on drone loans and a decreased GST for both drone sales and services…,” Garuda Aerospace’s founder and CEO Agnishwar Jayaprakash said. 

The drone tech sector is also hoping that the government would take steps to incentivise the use of drones in the defence sector in this year’s Budget. 

Ecommerce, Spacetech Startups Seek Incentives 

Despite being the darling of investors, the ecommerce sector was also not untouched by the impact of the funding winter over the last two years. This was visible in the fewer deal counts and the decline in funding raised by Indian ecommerce startups last year. 

In a bid to tide over this situation, the ecommerce startups have a long list of demands from the government. Industry stakeholders want the Centre to extend tax benefits to startups in the sector and focus more on export-oriented policies in the interim Budget. 

Ecommerce platforms also want the government to envisage policies that streamline business operations, promote innovation in digital payments, and strengthen the logistics infrastructure. Founders also want measures in the Budget for further growth of the government-backed open network for digital commerce (ONDC). 

“As India strides toward global supply chain leadership, there’s an anticipation for government action on critical challenges like technology integration, geopolitical tensions, financial stability, and labour issues, pivotal for the nation’s progress,” said ShakeDeal cofounder Akash Hegde.

Meanwhile, spacetech startups’ wishlist includes extension of GST exemption to all rocket vehicles, satellites, and ground equipment manufacturing. The ecosystem also wants the Centre to spell out clarity on its stance with regards to foreign direct investments (FDI) in the sector.

The startups in the sector are also seeking a production-linked incentive (PLI) scheme to spur production of space components as well as higher budgetary allocation for the space sector. 

On the other hand, the country’s battered crypto sector also has a slew of demands, despite crypto not even figuring in the FM’s Budget speech last year. Crypto startups are seeking relief on the taxation front, as 30% tax on income from cryptos and 1% TDS on transactions above INR 10,000 have taken the sheen off the industry.

The RBI’s top brass has called cryptos a threat to India’s macroeconomic stability and even sought a ban on them. However, the Centre has not made its stance clear on the issue. In this context, the industry wants clarity on regulations from the interim Budget 2024.

Industry stakeholders hope that the upcoming budget will reduce the TDS to 0.01% and permit offsetting of crypto losses against income from other sources. They also want the Centre to formulate policies that treat cryptos akin to traditional investments.

Founders also pitched plans for a special economic zone for Web3 startups that would provide tax holidays in their early years to promote such platforms. 

Calling for taking a nuanced approach towards cryptos, crypto founders said that the current definition of VDA was very broad. 

“This could be the basis for India to reconsider its tax treatment of VDAs, which is an outlier, both domestically and internationally. Reducing the tax arbitrage that exists today will also help stem the flight of capital, consumers, investments, and talent, as well as dent the grey economy for VDAs,” cofounder and group CEO of PeepalCo Ashish Singhal.

While the demands are long and fervent, it remains to be seen how much of it materialises in the interim Budget 2024. All said and done, when FM Sitharaman stands up to deliver her Budget speech in the Parliament today, the Indian startup ecosystem would be among those keenly watching.

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