Startups and Budgets: What does the 2019 Government Budget mean for startups
The Budget of the 2019 fiscal year and its impacts on Startup businesses. The new policies and monetary funds provided by the government for facilitating start-ups and small businesses.
Startups in India has faced many hurdles and setbacks. Demonetization had a negative impact on the market, which affected many small businesses and startups. The Goods and Service Tax (GST), which was implemented in a series of a rash decision, didn’t make it any easier for these companies. With the elections just months away, the Modi government tried to gain supporters through its policies set in the government budget.
The budget for the fiscal year of 2019 was announced on the 1st of February by Finance Minister Piyush Goyal. Due to a loss in key state elections, the budget has set several measures to win over farmers, salaried employees, and startups. However, it fails to address tax issues such as ‘Angel tax’ or the capital gains tax. The startup community had high hopes from the budget of FY 2019, such as a faster and easier method of license approval being one of them. Tech startups also expected an increase in the allocation of funds for adopting new technologies such as artificial intelligence and blockchain.
A survey revealed that in the months of October to December that open unemployment was at its highest in 45 years. To explain the statistics – if 100 people had employment, only 57 of them had still retained their jobs, the impact of government policies have caused this to occur on a large scale.
Prime Minister Narendra Modi launched the ‘MSME Support and Outreach Program’ in the month of November last year in which he announced 12 big decisions to support start-ups and small businesses in the country. These are the 12 announcements.
- The GST-registered businesses will be sanctioned a loan of Rs 1 crore in just 59 minutes.
- The GST-registered businesses will receive a tax rebate of 2%, or a subvention of the same figure, and also increment in the issue of loans up to Rs 1 crore. Concession on the interest of pre- and post-shipment exports by small businesses and start-ups will be increased to 5% from the previous 3%
- Companies should have a turnover of more than Rs 500 crore to join the Trade Receivables e-Discounting System (TReDS) so that Start-ups do not face trouble in cash flow.
- Public sector companies have been mandated now to purchase at least a quarter of their requirement (25%) from small businesses, as compared to the previous 20%
- Out of the 25% of materials obtained from small businesses, 3% will be procured from women entrepreneurs.
- All public sector enterprises will have to take membership for Government e-Marketplace (GeM) to procure common goods and services, provided by various government departments and organisations.
- The government announced a Rs 6,000 crore package to facilitate better technological support and tools to small industries. The money will be used for 20 hubs and 100 tool rooms for upgrading technology.
- The government will form small business pharma clusters. 70% cost of establishing these clusters will be borne by the government.
- Start-ups will have to file only one annual return on the eight labour laws and the ten central rules.
- Inspections of factories will be sanctioned only through a computerised random allotment and inspectors will have to upload reports on the portal within a time frame of 48 hours.
- Small businesses will now need single air and water clearance and just one consent to establish a factory.
- Common law has been declared to simplify the levy of penalties for minor offences.
The problem with the pre-set conditions is that despite the GST-registered companies being offered a subvention of 2% on interest, the 59- minutes loan is being used by banks to repay a loan they might have taken before. The issue of a new loan takes place in 59- minutes only when they have taken a loan previously. The state of non-performing assets and the pressure on the bank to provide non-collateral loans under the MUDRA act has made banks take this defensive stand.
The initiative was launched by the government of India to build a strong ecosystem which supports the growth of start-up businesses. The goal was to create sustainable economic growth and also generate large scale employment opportunity. Since its launch on the 16th of January 2016, several programs have been set as a way to convert India, from a job-seeking country to a job-creating nation. These measures have acted as a contribution to the establishment of start-ups and the start-up culture, with many entrepreneurs availing the benefits of starting their own business.
A 19-point action plan for start-ups in India has been drafted, with several of the policies that offer tax exemptions, ease of setting a business, and a corpus fund of Rs 10,000 crore. A number of incubation centres and a faster exit mechanism have also been envisioned by the government.
The policies for start-ups and small businesses haven’t changed from the previous one, which was announced in November. The after effects of the demonetization and GST implementation is still evident in the market. In the present budget, the previous policies such as the grant of 2% of interest on loans higher than Rs 1 crore, the purchase of 25% of materials through small businesses by the public sector is still in place. Along with that, now 90% of GST registered companies can file quarterly returns rather than monthly returns.
Despite these policies being placed, the budgetary allocations for start-up India program are being reduced, which in turn is being added to the Make in India scheme. The allocation of Start-up India has been reduced to Rs 25 crores, as compared to the previous Rs 28 crores. On the other hand, the Make in India program receives an increase in budget allocation, the total fund is increased to Rs 473.3 crore against the previous Rs 149 crore. The 19 components that are under the action plan, are now focussing on funding to provide support and incentives, simplifying the process and providing guidance to small businesses, along with industry-academia partnership and building incubation centres.
Despite the slight shuffle of allotment of monetary support in between the programs, the total budget is being reduced. According to the Union Budget, the total allocation for the department of industrial policy and promotion is reduced to Rs 5,674.51 crores, as compared to the previous Rs 6,140.23 crores. Despite this reduction in allocated funds, the policies are playing their role in facilitating and promoting start-ups and start-up culture.