Even as India’s interim budget, presented on Feb. 1, did not introduce many changes for startups on the policy front, the one-year extension of tax benefits for startups, sovereign wealth funds and pension funds investing in the country came as a relief for the sector.
Certain tax benefits that were provided to sovereign wealth funds and pension funds investing in the infrastructure sector in Union Budget 2020-21 have been extended to March 31, 2025, said finance minister Nirmala Sitharaman, while presenting the budget on Thursday.
“This was a broadly expected move and in line with industry expectations,” said Siddarth Pai, Partner, CFO and ESG Officer at venture capital firm 3one4capital, which closed its fourth fund at $200 million last year.
This year’s interim budget, which covers government expenses and revenues in an election year, is more of “a reflection of the previous achievements and promise to support growth,” Pai said, adding that the extension of tax benefits for another year cements the commitment to nurturing the immediate needs of the startup sector. “Investors are awaiting the [election] manifestos to see each party’s direction for innovation and new asset creation.”
Echoing the same thoughts, Mayuresh Raut, Co-founder & Managing Partner, Seafund added that the tax benefit extension shows there will be “continuity…there will be no surprises, which investors and markets abhor. It also signals that the full budget will focus on ensuring sovereign wealth funds will welcome these initiatives and will be energised to double down on capitalising on the India opportunity.”
Sitharaman also proposed an allocation of Rs 1 lakh crore for interest-free loans to support the pivotal role startups play in the Indian economy.
“The move to empower startups and tech-savvy youth with a corpus of Rs 1 lakh crore with 50-year interest-free loans is welcome,” said Rishabh Goel, Co-Founder & CEO, Credgenics.
Startups in India have, of late, been witnessing mass layoffs, faulty accounting practices, inflated valuations and widening losses, putting investors in a cautionary mode.
“In recent years, the startup ecosystem in India has expanded rapidly to emerge as a major driver of economic growth. The finance minister’s proposal to extend the tax holiday by another year is bound to accelerate the progress and give impetus to a new entrepreneurial pool,” said Manoj Purohit, Partner & Leader, Financial Services, Tax & Regulatory Services, at consulting firm BDO India.
While a tax break for one more year will lead to an increase in foreign capital inflows in India, the investor fraternity is of the view that the so-called funding winter is expected to continue. “The funding environment continues to be challenging, but resolution is expected after the elections. A majority of the world is facing elections, which has affected asset allocations,” said Pai.
Cash-rich sovereign wealth funds and institutional investors have been increasingly parking their wealth directly into Indian companies for quite a few years now, hoping to land a windfall in the years to come.
Asian funds such as Qatar Investment Authority (QIA), Abu Dhabi Investment Authority (ADIA), and Singapore’s GIC, among others, are increasingly making a beeline into India.
However, the FM’s speech left a section of investors wanting more. “While there was a comprehensive recap of past achievements, there was a noticeable absence of concrete measures for startups, founders, and investors,” said Yagnesh Sanjharka, Founder and CFO 100X.VC.
“The emphasis on macro measures such as EV adoption in public transport, increased focus on tourism, rooftop solarisation, and infrastructure development is appreciated, as it indirectly benefits startups in these sectors…there was a missed opportunity to outline specific initiatives and incentives to foster innovation and entrepreneurship,” Sanjharka added.