The Budget 2024 is distinctive, striking a balance between the populist approach of 2019-20 and the lacklustre, reform-sparse budget of 2020-21. It lays down essential foundations for future reforms in business, while simplifying processes for individuals.
For businesses, it addresses several long-standing demands and sets a long-term focus. Four key aspects stand out: fostering innovation in startups, supporting SMEs and MSMEs, enhancing ease of doing business and maintaining a long-term vision.
Focus on startups
In the current ecosystem, investment for startups has reduced. While many measures are required to boost investment, abolition of angel investment tax is a welcome move. Apart from easing investments, it reduces friction with tax authorities and helps the ecosystem focus on innovation.
The government’s decision to cut the long-term capital gains tax on profits from selling shares in unlisted companies, including startups, from 20 percent to 12.5 percent will benefit investors.
Support for SMEs, MSMES
The country’s over 63 million MSMEs contribute over 29% of gross value added (GVA) India’s GDP. Of these, over 36 million MSMEs generating over 168 million jobs are registered with the government’s Udyam portal. To foster their growth, the government has introduced measures like collateral-free loans and equity infusion.
Key priorities for MSMEs include enhanced financing, skill development and expanded market access, with a focus on labour-intensive manufacturing enterprises. The credit guarantee scheme for small manufacturing enterprises with a Rs 100 crore guarantee cover will facilitate equipment purchase without the need for collaterals.
The mechanism to offer bank credit to MSMEs during their stress period will help them continue their daily operations without the risk of slipping into a non-performing asset stage. Historically, MSMEs have faced credit constraints due to their business size, informal nature of operations and inadequate data to generate credit scores.
The budget addresses this by encouraging public sector banks to build in-house capabilities to assess credit needs of MSMEs. This will expedite credit access while also refining alternative credit assessment methods like digital footprint analysis. A system based on trust and conviction will contribute significantly towards promoting an entrepreneurial culture in India.
An enhancement in the Mudra loan limit from Rs 10 lakh to Rs 20 lakh is another step to incentivise MSMEs. To alleviate working capital pressures for MSMEs, the turnover threshold for buyers on the TReDS platform has been reduced to Rs 250 crore. The will bring 7,000 more companies on to the platform.
India’s economic progress hinges on the ability of its corporations, especially MSMEs, to hire skilled manpower at sustainable wages and suitable benefits. The budget has offered a helping hand to enterprises and employees through the PM’s Package for Employment and Skilling, estimated to provide job and upskilling opportunities to over 41 million youth.
Enabling ease of doing business
The finance ministry’s proposals centred on improving the business environment, encompassing initiatives like the revamped Samadhan portal, digital incentives for states, and decriminalisation measures under the Jan Vishwas Bill. With nearly 70 percent of total e-commerce sales in 2020-21 from MSMEs, the concerns of e-commerce operators have also been factored in. The proposal to reduce the TDS rate on e-commerce operators from 1 percent to 0.1 percent will reinvigorate the sector.
The abolition of angel tax for all investor classes is a significant win for startups. This long-awaited move frees up capital for innovation and growth, fostering a more robust startup ecosystem. While MSMEs and startups get special mention, the interests of traditional businesses too have been considered. The reduction in the corporate tax rate on foreign companies from 40% to 35% will help attract global capital.
Ramping up for the future
India’s entrepreneurial success story is built on the twin-towers of technology and innovation. The budget expands their scope through a series of measures, including the development of digital public infrastructure (DPIs) applications at scale, employment-linked incentives, upskilling and internships. DPIs will play a critical role in creating new business opportunities for MSMEs, coupled with existing DPI models such as account aggregator, open credit enablement network and open network for digital commerce.
The budget strikes a remarkable balance between fiscal prudence and aspirational growth. The holistic measures will help unlock entrepreneurial potential, and build an inclusive and Aatmanirbhar Bharat.
Rahul Kothari
Chief Operating Officer, Razorpay