Looking at the last year Union Budget sessions, it is clear that it continues to hold the collective attention of the country, cutting across classes. This budget was about kicking off the Amrit Kaal. 

The new Budget took a more granular approach towards infrastructure spending by dividing the plan into seven parts, or the Saptarshi as the Finance Minister called it. These areas are fostering inclusive development, achieving last-mile growth, infrastructure push, unleashing potential, green growth, finance sector, and youth development. Each of these has a significant impact on startups and the digital economy. When things move at an enterprise level, consumption usually follows, which augurs well for India’s startup ecosystem. And all of this whilst keeping the fiscal deficit below 6%.

Agritech seeds are sprouting

An important highlight of the Budget was the allocation of agriculture-related digital outlay.  There is a proposal to allot significant capital towards the adoption of digital public infra goods by farmers, which might mean good days ahead for agritech startups or fintech companies that enable efficient credit systems at the bottom of the pyramid. It is hard to make money on payments in India across the ecosystem, so it will not be surprising if it eventually happens in cross-border payments as well. But financial services will gain what payments businesses stand to lose.  INR1 lakh Cr has been allocated for green farming. A strong digital public goods infrastructure ensures that there is information available for farmers on crops, seeds, climate, soil, insurance and a host of other areas.  It also ensures that farmers can process payments and build better track records, have better productivity, honour their loans and be eligible for better credit, and eventually lead an overall dignified living.

A major challenge in this sector is excess labour on farms and large areas of underdeveloped farmlands. As a percentage, the farmlands may be in the single digits but in a vast nation like India, this ends up being immense even at 5% of uncultivated land. A big thrust on MSMEs, handicrafts, arts, local infra push and urbanisation will facilitate the movement of excess labour on the farms to move into these newer areas and in turn support mechanised farming, increase farm yields, and upskilling and employment for the underserved. 

Clean sweep for cleantech

The government has been consistent with its policy of pushing for green energy, clean fuel and EVs.  We are aiming for the 2070 deadline for Net Zero and the reduction of duties on parts will eventually help lower battery costs.  Apart from helping achieve energy security as a nation, there is a clear push for driving the purchase of EVs at both the private and government levels. They have allocated central budgets for phasing out old government vehicles and pushing the use of EVs and clean energy.  Developing Hydrogen fuel and devoting over USD3B towards these initiatives is a serious commitment. They have also accounted for viability gap funding for Battery storage. There is an exemption from excise duty on GST-paid compressed natural gas, which will have some cascading effects that have to be managed in input products across the value chain.  

Import substitution

This Budget seems to be the logical next step towards executing the plans laid out last time. There is a holistic plan for connecting different parts of the industries. Manufacturing coupled with skilling is one such example. There is a push for import substitution through manufacturing and a bunch of incentives and allocations for electronics manufacturing including mobile phones and other items.  There is a continued cut on duties for certain parts like camera lenses and lithium-ion cells.  There is a skilling program for talent creation in the medical and equipment manufacturing space.  Skilling-oriented start-ups, manufacturing-based startups, and B2B businesses stand to benefit in the long term.   

Fintech guardrails

The government is aiming to make KYC simpler for banks and other financial institutions.  At the business level, PAN is going to a single number for identity and it will be mandated that this be accepted as such.  This enables faster processes for financial services and regulated entities.  While we are yet to figure out the nuances and the policies that will drive this, it is still a big move. There will be more comprehensive policies around the usage of Digilocker whose scope has now been expanded. If the underlying conditions don’t create more uncertainty, this is an opportunity for fintech.  Tight regulations and governance are needed but an equally critical factor is to ensure there is clarity on the way forward for regulated and non-regulated entities. The government mandating respective regulators to work on a simplified regime for underlying participants in the ecosystem should help in this goal.

Other key areas

Centres of excellence will help enterprise and innovation-driven startups. Availability of data through the National Data Governance policy will help with policy frameworks beyond the academician. It's also being dealt a booster shot by the skilling programme by creating the required talent.  

This helps create a simplified environment where people have fewer hassles managing their financial records, fillings, and investments in the end state.  One precaution here would be to ensure data privacy, security and possible misuse. Here is a use case for data science, analytics and cyber security start-ups to lead the way.  

Digital adoption in the judicial process will help expedite the judicious disposal of cases.  This should help legal tech businesses too.

Coastal shipping outlay will give a boost to Indian logistics start-ups.

Sadly, there was nothing for the investors of such start-ups. Industry bodies and associations will continue to engage with the government on parity of capital gains tax for fund investors. Hopefully, an overhaul of regulations and the recommendations of the Damodaran committees should make it to future budget announcements.  That said, it was not zero output for investors, particularly funds. For instance, funds registered in GIFT city shall now have lower regulatory overhead and engagement because there is a delegation of authority to IFSCA to handle matters pertaining to the industry.  

The budget provided some immediate relief to the startup industry by providing an extended period for carrying forward losses and a tax holiday period.  Taxation of ESOPs and re-domiciling of start-ups is would have helped both the government and startups, but the industry will have to continue to work with FinMin to get them to appreciate these challenges and the opportunity loss better.  

As we study the fine print, we see a few bummers such as the additional compliance burden. But hopefully, the government will realise that startups can be a large contributor and an ally in the $ 10Tn economy dream if unshackled.