The Economic Survey 2022 was tabled in Parliament this week. What caught my attention was the massive progress that the Indian startup ecosystem has registered over the last six years. As per the survey, the number of newly recognised startups increased to over 14,000 in 2021-22 from a mere 733 in 2016-17. Moreover, India has emerged as the third-largest startup ecosystem globally, next only to the US and China.
In 2021, despite a Covid-19 induced global economic slowdown, record 44 Indian startups achieved unicorn status, taking the overall number of unicorns in India to 83. A significant number of these businesses are technology startups, disrupting several industries. Therefore, when Finance Minister Nirmala Sitharaman presented the Union Budget 2022, unlocking value for tech startups was high on the agenda.
Telecommunication has been a strong backbone for technology innovations in India. However, 5G telephony can take it to several notches higher. Thus, the announcement that the required spectrum auctions will be conducted in 2022 to facilitate the rollout of 5G mobile services within 2022-23 by private telecom providers is a significant boost for technology startups. Moreover, it will empower several existing and future tech startups to tech cutting-edge solutions based on 5G technology.
Another significant opportunity for tech startups comes from the government’s ongoing focus on financial inclusion and building railroads for a digital economy at the last mile. The FM envisions that all villages have the same access to digital resources as urban areas. The vision will encourage tech startups to identify and roll out low-cost solutions that bridge the urban-rural digital divide across many aspects of day-to-day life.
The government also highlighted its strategic intent to support tech startups working in sunrise sectors such as Climate Action, Deep-Tech, Digital Economy, Pharma and Agri-Tech by promoting thematic funds for blended finance. Private fund managers will manage these funds with the government’s share capped at 20 percent. These funds are expected to have a multiplier effect by encouraging R&D work in several technology-heavy sectors.
India has been one of the hottest investment destinations for venture capital funds and investors in the last couple of years. The budget aims to retain the country’s edge as a high-potential investment destination. Thus, the FM announced an expert committee to examine and suggest appropriate measures to boost startups’ venture capital and private equity investments.
Moreover, the decision to cap the surcharge on long-term capital gains at 15 percent for all listed and unlisted companies will benefit venture capital investors, startup founders, and employees. This is a 16 percent reduction in the effective tax rate and goes a long way towards making startups more investible. Moreover, the move is in line with a long-standing demand of new-age tech companies, which wanted share sales of unlisted firms to be taxed at par with those of listed ones.
Last but not least, a significant relief for startups is a tax incentive for eligible startups established before March 31, 2022, for three consecutive years out of 10 years from incorporation. The period of incorporation has been extended by a year, considering the impact of the Covid pandemic on startups.
Overall, the budget was a roadmap to the government’s objectives to position India as a technology-driven economy. Mrs Sitharaman has reassured the Indian tech startups that they are operating on excellent ground by channelising funds and providing incentives.
Dr. Rashi Gupta
rashi@rezo.ai
Chief Data Scientist and Co-founder, Rezo.ai