India’s $5 trillion dream - go big or go home!

The government seems to have its ear to the ground and has taken into consideration the demands of the key stakeholder and players in the startup space.

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The government also proposes to introduce an e-verification system to establish identity and source of funds of investors.
By Ankur Pahwa

The Indian government has set an ambitious target of being a $5 trillion economy by 2024 and is relying on digital payments, infrastructure and investments to help meet this target. The recently released economic survey and just announced budget provides a fairway to unlock India's human and intellectual capital.

The government has set its vision and should soon provide specific enablers which help in the execution of its vision, the task of innovation and delivery rests on the shoulders of the entrepreneurial community which needs to play a bigger role in nation building. The startup community were expecting a host of policy measures to strengthen the now ‘third largest startup ecosystem in the world’. Some of the key aspects addressed are:

To boost FDI in the country, it is proposed to relax FDI Regulations by allowing 100% FDI in insurance intermediaries sector, this will help bring in global expertise in the segment along expanding the market and introduction of innovative and superior offerings, expansion is likely to be more in property, casualty and health insurance compared to life insurance. Further, it has been proposed to remove the 30% local sourcing norms for single branded retail sector, this relaxation should have a positive impact on both existing players and new players especially in the fashion and electronics space.

To encourage digital payments, the government has proposed that every business with a turnover of more than Rs 50 crore should provide means of accepting payment through certain prescribed digital modes. It is also proposed that banks will not impose any charges on usage of the prescribed payment modes. This will certainly boost digital payments infrastructure and also help moving towards formalizing the economy further

Most significantly, the budget seeks to address the much talked about issue of angel tax. While the startup community may have hoped for a complete abolition of angel tax, the FM has proposed that angel tax will not be applicable for startups and their investors who file requisite declarations and information in their tax returns. The government also proposes to introduce an e-verification system to establish identity and source of funds of investors.

With a view to restrict regressive actions of tax officers, a ‘special administrative arrangements’ is proposed to be introduced for pending assessments of startups. However, the devil is in the details - one needs to really ‘wait and watch’ for the notification the government will come up to see how much of the above intent is translated into action. The government has also provided a much awaited relief from angel tax for investments made by Category II registered AIFs. This is a welcome move and is likely to enhance investments by funds in Indian start-ups.

Provisions in relation to carry forward and set off of tax losses is proposed to be relaxed for startups; enabling the shareholder of a start-up to exit without impacting the tax losses subject to continuation of 51% shareholding of the company. To further incentivise, promoter/ angel investment in start-ups, the FM has extended capital gain tax exemption provisions relating to sale of residential property which is re-invested in a start-up. The budget has also attempted to relax certain conditions to avail the benefit.

Electric vehicle makers and owners in the country will be eligible to enjoy the reduced GST rate and income tax rates respectively, this is in-line with the government's vision to expand infrastructure to enable electric mobility like setting up charging stations, battery swapping, as well as investment in electric vehicles by both manufacturers and consumers. This will further give a major acceleration to EV makers in the country.

The government has not only acknowledged the rise of new technologies such as Artificial Intelligence, Robotics, Internet of Things, Big Data, 3D printing and Virtual reality but is also actively providing focus on development of these skills that is the need of the hour globally. As these skills slowly attain mainstream status, India could be a key hub for these skillsets.

The government has also indicated that it will bring in new education policies that will help transition India's higher education system to cater to new age technologies, bringing to par educational divide that exists in the country as well as industry skill trainings, all of which could be a great opportunity for startups in the education space.

In a bid to improve digital connectivity especially in rural areas it has been proposed that Bharat-net will target internet connectivity in local bodies in every Panchayat in the country in order to bridge the rural-urban digital divide. Along with this proposal, the government also plans to create a fund focusing on agri-innovation and agri-tech that is much needed to build a sustainable agricultural ecosystem

The government seems to have its ear to the ground and has taken into consideration the demands of the key stakeholder and players in the startup space. However, there are still some concerns with regard to deferral of taxes on ESOPs and consolidation/ share swap, capital gain tax exemption/ concessional rate on exit from start-ups, reducing withholding tax rates and compliance burden that still need to be addressed. Hopefully with the grand vision clear, some of these will get implemented in the next budget leading towards a $5 trillion economy.

(The writer is Partner and National Leader – E-Commerce and Consumer Internet, EY India.)
(Disclaimer: The opinions expressed in this column are that of the writer. The facts and opinions expressed here do not reflect the views of




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