Budget 2023: Start-ups need help to overcome funding freeze

The start-ups expect Budget 2023 to contain steps to address the funds crunch at a time when the government is seeking to insulate the domestic economy from the impact of a looming global recession.

Indian start-ups need booster: As it gears up to present Budget 2023, the Union government is under pressure to kick-start the slowing economy. One area that needs finance minister Nirmala Sitharaman’s immediate attention is India’s start-up ecosystem which suffers for want of funding support. The start-ups expect Budget 2023 to contain steps to address the funds crunch at a time when the government is seeking to insulate the domestic economy from the impact of a looming global recession.

Tech start-ups witnessed a bloodbath in the stock exchanges last year and are struggling to find new investors. Because of the negative market sentiment, global macroeconomic instability and fears of a recession, unlisted start-ups such as Oyo, BoAt, PharmEasy are finding it difficult to go public.

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Budget 2023: Expectations of Indian start-ups

The Union Budget 2023 is going to be crucial for India’s start-up ecosystem. While the government is already providing support to start-ups, there are a few long-standing demands of the industry that are expected to be considered by the finance minister and her Budget 2023 team.

For one, the government may look at offering a tax relief of 30% of the cost of the equity shares set off against the angel investor’s income tax liability for the year in which the investment is made. This will enlarge the pool of angel investors at the seed stage of start-ups. It is also high time to reconsider employee stock option plans (ESOPs) as they have long been ignored in India. There is a sizeable number of start-up success stories where ESOPs created wealth. Taxing the ESOP at the point of sale, and not at the time of investing, is a long-standing industry demand.

Further, there should be a single window for all relevant registrations like company incorporation, shop establishment, goods and services tax (GST) registration, and MSME (micro, small and medium enterprises) certificate. This will save a lot of time, effort and money for start-ups.

Investment in a start-up is currently an illiquid, risky asset. Start-ups are seeking parity in taxation — such as in base rates on listed and unlisted securities — for investors. This is critical for promoting investments into start-ups. The government could set up a start-up founders committee to build structured entrepreneurship, and a finance education curriculum in colleges to build next generation entrepreneurs.

Start-ups are central to India Story 

India is the third largest start-up hub in the world with more than 83,000 enterprises. India has over 100 unicorns and the start-up industry attracted around $120 billion in less than a decade from foreign investors. With this huge funding, the country was also able to generate millions of jobs. The collective valuation of Indian start-ups is upwards of $400 billion.

India has one of the leading start-up ecosystems in the world and start-ups are key to India becoming a $5 trillion economy. Start-ups have been contributing greatly to the rise of the Indian economy in the new millennium. The last year was not a great one for the start-up ecosystem. The global economic headwinds prevailed in 2022 and slammed most companies with an unanticipated slowdown. This means investors will continue to tighten their purse strings despite huge cash reserves. This means a headwind for Indian entrepreneurs. Without enough funds, start-ups will find it difficult to evolve from ideas to enterprises.

Despite the current funding winter, the innovation boom unleashed by Indian start-ups is expected to continue. And it needs help from Budget 2023.

Union Finance Minister Nirmala Sitharaman will be presenting the Budget for financial year 2023-24 on February 1, 2023. This will be the last full budget for the BJP government before the general elections of 2024.