By Advait Moharir
In the last few years, a new culture of entrepreneurship has emerged in the Indian markets. The culture of start-ups. It has been observed that start-ups have become the new buzzword for today’s generation and the introduction of the Startup India scheme by the government has raised hopes of creating more entrepreneurs in India. As the Union Budget approaches, it is time that India’s start-up story be examined so that it will be known whether the 2017 Budget will be conducive to them or not.
The word startup literally means a newly created business.
However, according to the Startup India scheme it is specifically defined as a business which is not more than 5 years old and with a turnover not exceeding Rs. 25 Cr. The startup movement in India can be traced back to the establishment of e-commerce firms like Flipkart, which brought online shopping to India and are now well-established firms. The optimism of a fast growing economy spilled over to the next decade and with the structural shift to the tertiary sector continuing at an unceasing rate, the atmosphere was ideal for startups. With a demographic dividend waiting to be exploited, investors shed in big time and went on a funding spree. There were 4200 new startups in 2015 and $9 billion in investments.
However, reality has been hard hitting for startups in India. The startup boom created cutthroat competition, with services ranging from grocery delivery to garbage pickup being provided. Multiple startups picking up high VC funding faltered, and price similarity made it extremely difficult to differentiate products. Established startups like Flipkart laid off hundreds of employees and even fired its founder. More than 200 startups died and there were comparisons being made to the dot-com bust of 2002. However, as Northwest Ventures ED Mohan Kumar said
“This is a natural progression,” “When you look at the ecosystem, not more than 20% of the startups succeed. Two to three years after a startup’s inception is a time when you see high mortality. There is too much competition, and only a few survive.”
It is hoped that budget 2017 brings good news for startups. I Photo Courtesy: Dataquest
The surviving startups are clearly long term players and it is in the government’s interest to thus promote startups. The Budget can expect to ease tax norms further, as Commerce Minister Nirmala Sitharaman indicated. The demand for increasing the “tax holiday” from three to seven years has been forwarded to Finance Ministry by Department of Industry Policy and Promotion. There will also hopefully be an attempt to ease business norms so as to attract more funding and increase investor confidence in new startups. There might be a reduction in period for long-term capital gains for unlisted securities due to the high risk involved in investing in startups. The government will also look to further enhance the startup India scheme itself, after due appraisal so as to become major stakeholders in this process.
With the slump in manufacturing, the Budget may also provide special incentives to manufacturing startups to boost production.
With India going through a period of jobless growth, and no immediate solution in sight, Startups are excellent job creators. Also, with the initial period of uncertainty gone and the weaker players out of the market, the government would aim for consolidation of the stronger players. Thus, Budget 2017 may indeed bring good news to the startups.