2020 was a tough year for us all and tested everybody to limits. Covid-19 brought the whole world to a standstill. With economies crashing, markets collapsing, airlines filing for bankruptcy and woes continuing for the lower middle class all around the globe, COVID-19 proved the scariest of all the scares for us all. While economies were crashing and national currencies lost their values, the rich simply got richer by piling on large sums of money.
Renowned Businessmen like Jeff Bezos, Elon Musk and Bill gates had on average a 57% increase in their wealth during these COVID-times. However, Newbies in the field, particularly the start-ups suffered a great deal. On average 72% of the start-ups saw a decline in their revenues with the average decline being 32%.
As each dark night is followed by a bright sunny day, the horrors of 2020 yielded to the optimism associated with 2021.
The whole Indian nation witnessed a ray of hope and a breeze of a fresh air on Monday, 1st of February as Indian Finance Ministry revealed an allocation of a mammoth 830 Crore INR for start-ups. What indeed is expected to be a fresh start for this sector of Economy promises to contribute significantly to the growth of the nation.
Here we shall try to cover all the details of this momentous announcement in 20 points, starting with its background and in the lead up, revealing the reasons behind this bold move while concluding with its implications on various sub-domains.
- Background
Initially, the estimated amount for this sector in Indian Budget for the year 2020-21 was between 400-430 Crore mark but the realization of the impact of this move was enough to convince the authorities to raise the bar by another 400 Crore Indian Rupees, thus giving Indian Start-up industry a huge boost and sense of acknowledgement.
Multiple Reasons have led to this brave call, which marks the evolution of a new and Improved India.
- Employment Opportunities
Focus on the start-up sector is significantly crucial. It will play a pivotal role in the reinvention and growth of the Indian economy while creating considerable employment opportunities.
- Exponentially Increasing Population
India is home to the world’s second-largest population which is also the fastest-growing one and will surpass China as the world’s largest Population by the year 2027, according to the UN’s population division report. Hence, the Indian Government and planning agencies must ensure that a sustainable and innovative environment is promoted
- Youth and Innovation
Currently, Indian youth (below 25 years of age) constitutes 34.6% of Indian Population. The number is bound to increase as time goes on. To give young entrepreneurs an opportunity is a wise call. It will not only encourage and promote the creative minds to think out of the box. This will also enable the country to establish itself as an Innovation Hub. Hence, guaranteeing ultimate success, prosperity and exponential growth.
- Economic Growth
India’s economy will see an 8% contraction in the Fiscal Year 21 due to unprecedented pandemic situation, ending March 31, 2021. However, the positive part of it is that the economy is expected to bounce back with an expected 11.5% growth in the Fiscal Year 2022. India is the only country projected to register double-digit growth in the year ahead as per its latest World Economic Outlook Update. The decline was obvious in the previous year. However, if India is to make some real progress and grow as an economy, it has to value its local talent and that can only happen if full support is extended to its general public, particularly the youth. Only then, that 11.5% growth prediction is going to be true.
Now, if we explore some of the statistical figures from analytical approach, some of the figures are not just astounding for the general public but encouraging and exciting as well especially for those planning to get started any time soon
- Start-Up India Program
The allocation for Start-Up India programme has been increased only a fair bit to Rs 20.83 crore for the fiscal cycle 2021-22 from the previously revised estimated value of 200 million INR in the year 2020-21.
Start-Up India program targets fostering entrepreneurship and promoting creativity by creating a systematic atmosphere which is supportive to the growth of new aspiring entrepreneurs. It is expected to contribute significantly to the shifting trends in the country.
- Guarantee Fund
Similarly, the government took a special liking to the Guarantee fund which provides third-party credit risk mitigation to lenders through the absorption of a portion of the lender's losses on the loans made to SMEs in case of default, typically in return for a fee and raised its allocation to 3 Billion INR.
- Text Holidays Extended
Tne year Extension in Tax Holidays for Start-Ups certainly makes the direction of government clear to the layman. In her budget announcement speech, Indian Finance Minister Sitharaman announced an extension of the tax holiday to Start-Ups by another year to March 31, 2022, during her Union Budget 2021 address. Hence, the newly established businesses will enjoy this exemption for another year till the end of the next fiscal cycle on 31st March 2022.
Previously, in the year 2017, a similar announcement had paved the way of this aspiring start-up ecosystem which is the third-largest right now.
Back then the announcement stated that start-ups could avail a tax holiday for three out of seven years, from the date of incorporation. Start-Ups can avail this exemption provided that annual turnover does not exceed INR 250 million in any financial year
- Special Exemptions for Investors
Another warmly welcomed move from the finance ministry is the extension in the exemption allowed to investors, particularly those investing in newly established start-ups. she also announced that to incentivise investment in Start-Ups, the government is proposing extending the eligibility period of claiming capital gains exemption for the investment made in the Start-Ups by one more year to March 31, 2022, Since this initiative comes at an uncertain time for the entrepreneurs, it serves as a huge boost as well as relief for those who are trying to establish themselves in the market as it would encourage the investors to trust the aspiring youngsters and provide them with the necessary financial help.
- Indian Insurance Act, 1938 Amended
The proposal to amend the Insurance Act, 1938 was a great step too. The decision to increase permissible foreign direct investment limit from 49% to 74% in insurance companies at the Union Budget 2021 will attract more foreign investment and eventually give the youth another opportunity to transform their creative geniuses into practical applications. While this would allow foreign ownership and control of insurance companies in the country with certain fallbacks. The restraints include the condition that the majority of directors on the boards of such companies and key management persons will have to be Indians, with 50% directors being independent directors and a specified percentage of profits being retained as general income of the corporation.
- Digital Payments
Financial tech was also on the radar of the finance ministry. The fact that the Indian government proposed allocating INR 1.5 Billion to boost the influx of digital payments, as well as other measures to boost financial inclusion, indicates how covid-19 has shifted the trends. Indian Finance Minister Nirmala Sitharaman has proposed to set up a World-Class Financial Technology Hub near Gujarat capital Gandhinagar at GIFT City. The announcement is viewed as a real positive and some people are referring to it as the face of a transformed India
- Lower Compliance Burden
A real sigh of relief for the Start-Ups has been the announcement of lowering of compliance burden on Start-Ups. Finance Minister proposed to revise the definition under Companies Act, 2013 for small companies. This included increasing their threshold for capitalisation from not exceeding INR 50 Lakh to not exceeding INR 2 Cr and turnover from not exceeding INR 2 Crore to not exceeding the new limit of INR 20 Crore. According to her, this will eventually help over two hundred thousand small companies.
- Digitization in MCA affairs
We all know how things have changed over the past decade and how much impetus has been on digitization. Keeping that in view the finance minister Sitharaman proposed to use data analytics, artificial intelligence, machine learning to make regulatory filings more frictionless for businesses and Start-Ups in a revamp of the ministry of corporate affairs (MCA) portal. The government had said that the ministry would look to introduce AI-based features in MCA-21 when version 3.0 of the portal is rolled out. The Ministry of Co-operate affairs updated portal is expected to have fundamental features such as a single source of truth, ease of doing business, e-adjudication, online compliance monitoring, among others. This is targeted with the idea of ensuring more authenticity and improving the overall understanding of the market by making all the more comprehensive. For the Start-Up ecosystem, this is crucial as MCA-21 shares crucial information to various stakeholders such as the regulators, investors and companies. All filings under the various laws for companies and businesses in India are submitted through this portal.
- Railways Electrification and opportunities
The Finance Minister also proposed 100% electrification of railways by 2030 along with plans to boost the share of public transport in urban areas during the Union Budget 2021 address. The government has announced an outlay of INR 18,000 Cr for the same for the 2020-21 period. The Minister also talked about bringing in metro-lite and metronome technologies, which are rail-guided urban transport systems with rubber-tyred electric coaches powered by an overhead traction system running on elevated or at-grade sections, in tier 2 and tier 3 cities. So, with an evolving economy, the opportunities are bound to increase. It’s up to the youth of the country to now absorb it and use it to good effect
- Decriminalisation of LLPs
Budget 2021 also focussed on decriminalisation of limited liability partnerships, with the flexibility to convert a company to any form or LLP to benefit more than two lakh companies in easing the compliance requirement.
- Social Security to Employs
Another key proposal is extending social security protection to gig and platform workers, which Sitharaman claimed is a global first. The government plans to launch a website that will collect information on gig and construction workers among others, and help formulate health, housing, skill, insurance, credit, and food schemes for them. So, for those who are looking for a break in this field by hiring a certain number of workers, the government offers to take care of them
- Green Signal for One Person Companies
Finance Minister Sitharaman said the government plans to incentivise the incorporation of One Person Companies (OPCs) by allowing them to grow without any restrictions on paid-up capital and turnover and convert into any other type of company at any time. The government is also highly likely to reduce the residency limit for an Indian citizen to set up an OPC from 182 days to 120 days and allowing Non-Resident Indians (NRIs) to incorporate OPCs in India. Hence, individuals planning to launch single person companies can have their shot now.
- Digital Census and its Implications
Another rather surprising announcement stated that the next general census in the country will be the first digital. This will mean a boost in business for both hardware companies, which will likely see a surge in sales of laptops, tablets, smartphones and printers, as well as software companies that will run and build the technology-enabled back end. So those having their knowledge and interests in these fields are said to multiply their gains as this phase of the market is set to boom.
- Glory Days for Textile Sector
The textile sector is also set to have their fortunes changed overnight. Finance Minister announced while presenting the Budget 2021-22 in Parliament. The exact words of her announcement were "A scheme of mega-investment textile parks will be launched in addition to the PLI scheme," She informed that 7 mega textile parks will be launched in three years as part of the scheme. The mega textile parks will have integrated facilities and quick turnaround time for minimizing transportation losses, eyeing big-ticket investments in the sector. The plan is to lead the global textile market and establish India as the hub of textile exports not just in this region but worldwide
- Exporters have their share of the pie.
For the export section of the economy, the budget certainly had multiple things in it.
By encouraging these start-ups, the government certainly has arranged for goods production. What’s necessary now is to encourage their promotion and create opportunities for the general public to export their locally produced quality product. The total allocations for export promotion schemes were also increased. The particular examples are the Market Access Initiative and Interest Equalisation Scheme. The increased figure is Rs 2,365 crore for 2021-22 against the revised estimate of Rs 2,175 crore in 2020-21. As a consequence, Indian exports are expected to grow significantly with the estimates lying between 2.5-4.5% increase.
Conclusion:
The budget has largely been appreciated from all segments of the society. This is a commendable budget as it will speed up the pace of growth in India. The provisions made in this regard for infrastructure development are revolutionary. This budget will also reduce the dependency on China. Arrangements have been made in this budget to make the agriculture sector also dynamic. The steps taken to promote quality of life will benefit in the long run and AATMA NIRBHAR concept will gain stronger roots. Now it’s the responsibility of the nation, particularly the young entrepreneurs, to utilize these chances for their own benefits and help country rise to the glories of economic stability and growth.