Innovation Boost: Preparing for Startup Opportunities before Budget 2024

Key Takeaways

• Last year's budget brought several initiatives for startups but the funding landscape for startups in India faced challenges. The funding for startups plunged to a seven-year low.
• The disruption in funding and layoffs has impacted the startup ecosystem, thus leading to a challenging climate for growth and innovation.
• In the upcoming budget, there are expectations for key measures to boost innovation and pave the way for more unicorns in the Indian startup sector.

The slowdown in funding and the job cuts has caused disruptions in the growth trajectory of many startups. So, we must wait for what decisions there are for the Startup Sector by the Finance Ministry this year. This is because the repercussions of prior budgetary decisions have significantly impacted the startup ecosystem. They often lay the groundwork for the emergence of more unicorns in India.

Previous Budget

Last year, the Indian government introduced various measures aimed at supporting the startup sector in the Union Budget. This included initiatives such as the promotion of digital payments and economies, tax incentives for startups, and the formation of the ₹10,000 crore Fund of Funds for Startups (FFS).

As a result of these budget decisions, India has seen significant growth in its startup ecosystem. The number of unicorns in India has increased, with the country now being ranked as the third-largest startup ecosystem in the world in terms of the number of unicorns.

However, the Indian startup ecosystem encountered substantial challenges. Lay-offs in the startup sector reached an all-time high, contributing to uncertainties within the ecosystem. Furthermore, the devaluation of startups was also apparent. For example - BYJU’s experienced a substantial reduction in its valuation from $22 billion to $2 billion.

Growth in Indian Startup Ecosystem

The government is expected to allocate more funds to encourage entrepreneurship and facilitate the growth of startups. This can be achieved through the provision of additional funds, simplified tax rules, and regulatory requirements to attract newer technologies and promote innovation.

There are calls for taxation policies, such as carry-forward losses on investments and Employee Stock Ownership Plans (ESOPs). This involves aligning capital gains tax on unlisted startup shares with listed shares and providing incentives tailored for Environmental, Social, and Governance (ESG) practices.

The government must also emphasise on strengthening digital commerce initiatives, introducing incentives for merchants in rural areas, and allocating funds to enhance last-mile connectivity for Direct-to-Consumer (D2C) e-commerce. Plus, with evolved policies supporting cross-border commerce, India could become a global eCommerce hub.

The 2024 interim budget is anticipated to focus green mobility for electric vehicles (EVs) by addressing licensing, safety standards, and insurance norms tailored for EVs. This can be supported through the continuation of the emphasis on green mobility, potential updates on schemes such as Faster Adoption and Manufacturing of Electric Vehicles (FAME) and Production-Linked Incentives (PLI) for EVs.

Conclusion

The year 2023 alone witnessed $1 billion raised in startup funding, highlighting the resilience of the ecosystem despite challenges. Furthermore, the expectation for tax reforms and regulatory clarity is based on the need to foster an environment conducive to the growth and sustainability of startups.

Therefore, the upcoming budget is poised to set a foundation for a more favourable environment for startups, promoting innovation and entrepreneurship. This proactive approach is essential for cultivating a dynamic startup sector in India, thereby laying the groundwork for the emergence of more unicorns in the future.