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iSPIRT’s Official Response to Union Budget 2021

Boost for HealthStack, but no gains for Industry

The Pandemic had decided much of the flow of financial planning in a country like India. The emphasis on Atma Nirbhar Bharat right at the outset in PART A of speech is on expected lines in a changed scenario post pandemic. Health being given importance forming the first pillar of six pillars was also expected based on ongoing developments.

For decades, India has underinvested (both in public and private spend) in the overall health of the population, and it took a global pandemic to dedicate a new Pillar of the budget to improving health outcomes and increase funding by 130%. It is heartening to see a substantial budget allocation of 64,000 Crore towards the Aatmanirbhar Swasth Yojana to improve primary, secondary and tertiary care. With the National Health Authority ​getting veteran RS Sharma (former Chairperson of TRAI and UIDAI) as its new CEO, this scheme could be implemented in a digital-first manner taking advantage of the advanced architecture of the National Digital Health Mission.

At iSPIRT we are pleased to see this development, and look forward to a year of accelerated efforts to establish key public digital infrastructure that could improve healthcare.

It was also encouraging to see Innovation and R&D mentioned as one of the pillars; this is a sign the Government is keen on supporting an innovation driven economy and the Indian products eco-system. The National Research Foundation outlay of 50,000 crores over 5 years is applicable across all sectors. Production linked incentive (PLI) schemes were announced for 13 sectors. This is a welcome move to bring in a thinking of promoting Indian Product Champions. However, the details of structure and which sectors and playgrounds the Government is attempting to promote will determine the success in the global landscape.

At iSPIRT we have been advocating development of niche playgrounds in sectors where India has a competitive advantage such as Software products in all sectors including defense, telecom etc. Whether the outlay of 1.97 lakh crores, over 5 years starting FY 2021-22 will be enough is to be tested.

The Continued emphasis on digital payment promotion with a new proposal of 1,500 crores and not losing sight of startups movement is heartening for the Software product industry. Improving norms to formation of a 1 person company will encourage innovation, entrepreneurship and startups. The Government seems to also be inclined to use technology to improve compliance via faceless assessment and a reduced limit on reopening of assessment limits, which are also efforts in a positive direction.

The biggest missed opportunity was around support to MSMEs – which are the key to driving scalable innovation. The MSME sector continues to need life support post the pandemic. While the Government slotted in a 2X budget estimate for MSMEs, it is not clear what this will go towards or that it will help the sector at scale. What remains to be addressed is critical changes that could MSMEs, ease frictions to accelerate growth.

We wanted to see more action on Ease of doing business, especially around removing bottlenecks for tech companies across sectors. In a digital economy, the small business sector is the lifeblood of future growth, and the government will need to think hard about the true means of galvanising this sector.

About iSPIRT Foundation

We are a non-profit think tank that builds public goods for Indian product startup to thrive and grow. iSPIRT aims to do for Indian startups what DARPA or Stanford did in Silicon Valley.

iSPIRT builds four types of public goods – technology building blocks (aka India stack), startup-friendly policies, market access programs like M&A Connect and Playbooks that codify scarce tacit knowledge for product entrepreneurs of India. visit www.ispirt.in

For further queries, reach out to Sudhir Singh​, email: ​[email protected] Or ​Karthik KS​, email: ​[email protected]

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iSPIRT Foundation’s Official Response to Union Budget 2019

The budget has some relief for startups, but not an outsized role in the $5 Trillion plan
 
In her first budget presented today by the newly-appointed Finance Minister Nirmala Sitharaman started her speech with strong words stating that “We do not look down on legitimate profit-making. Gone are the days of policy paralysis and license-quota-control regime”. Given the resounding mandate of the people, this government has the political capital to execute a bold budget and this is what the country was expecting. While the vision is bold, the recommendations made by the government were a mixed bag – some solid announcements, but also notable for its omissions.

Startups may, at last, see the end of the dreaded “Angel Tax” that has plagued them since 2012. The creation of an e-verification process and “special administrators” whose permission would be required before an Assessing Officer can begin inquiries against start-ups who have already received orders should extend relief to those who were excluded from the February 2019 circular by DPIIT. This can also solve for section 68 – wrt unexplained cash credits – which was the more onerous section by ensuring verification of investors. Extending the exemption of section 56(2)(viib) to Cat II AIFs also brings parity and greater participation between AIFs. The tax deduction for investments into startups saw relaxations in the holding period (5 to 3 years), reduction in the minimum threshold (50% to 25%) and extending the time period.

In this budget, the government recommitted to its ideal of a less-cash economy. By allowing digital payments to the government, they are essentially legitimizing the use of digital payment methods. Further, by disincentivizing cash withdrawals by applying TDS and mandating digital payment acceptance without charges for firms over turnover Rs 50 Crores, they will further “nudge” users into preferring paying digitally. The approach just provides for a reduction in cost and discourage cash expense. This is hardly a definite fiscal measure for incentivizing digital payment. Most importantly, the government is eating its own dogfood, and starting to make digital payments through a dedicated payments platform to its own MSME suppliers and contractors, not only boosting digital payments but providing a critical lifeline to MSMEs by reducing their working capital requirements. In fact, the government has announced a significant boost to improve the availability of credit to the economy.  This includes providing Rs 70,000 Crore to the banking system, as well as a partial credit guarantee for the purchase of Rs 1 Lakh crore of pooled assets from the NBFC system. These measures should improve the availability of credit to the private sector, and boost growth!  The govt has also announced an amendment to enable all NBFCs to lend against invoices through TReDs. These are steps in the right direction and will free up much-needed working capital for the industrial sector.

It is encouraging to see the government adopt technology to improve convenience and simplification for tax-payers. Currently, there are nearly 40 crore citizens in India with a PAN in contrast to 120 crore Indians with Aadhaar. “Interchangeability of PAN and Aadhaar” was announced by Nirmala Sitaraman which has the potential to increase the tax filing base to all Aadhar holders. The details about implementation are specified as follows. Income Tax Department shall allot PAN to every person who will be filing tax with Aadhaar and currently do not have a PAN. The demographic verification will be carried out using data from the Unique Identification Authority of India (UIDAI). Additionally, citizens who have both PAN and Aadhaar can choose to use either of the options to file their returns. While the move of interoperability clearly seems to increase ease of filing taxes, whether it would also increase the number of tax-payers in informal sectors is still a question that needs examination. Further, understanding the implications of increased data linkage includes the discussion of data security.

What was missing was an indication of “Startup India 2.0” – the new phase of Startup India. The Rs 20,000 Cr Startup Seed Fund wasn’t announced, nor were fresh incentives for investments into VC Funds or startups, rationalisation of ESOP taxation, amongst others. Lowering the LTCG ( Long term capital gain) rate on startups shares, which was alluded to in the Economic Survey, also doesn’t find mention in the Budget. Additionally, there have been no measures to help our startups list in Indian exchanges. Overall, this budget has also not delivered on promoting Rupee Capital Formation which would help local startups wean off volatile foreign capital.

Despite the Economic Survey’s focus on Data as a public good, no significant announcement was made to leverage the Data assets of the country. In the speech about soft power, while Yoga and Artisans rightfully got their place, new-age digital platforms like Aadhaar, BHIM-UPI and India Stack, which are truly world-class, did not see a mention. Recognizing these Digital Public Goods as elements of soft power that can be exported to other countries would also give a massive boost to India’s start-ups in markets abroad.

Reach out to Sanjay Jain ([email protected] ) in case you would like to know more details.

Special thanks to our volunteers Saranya Gopinath, Rakshitha Ram, Siddarth Pai, Tanuj Bhojwani, Sudhir Singh, Sanjay Jain, Nakul Saxena, Sharad Sharma, Karthik KS.