MSMEs and their impact on the Indian economy has been proven time and again. Home to over 6.8 million Udyog Aadhar registered MSMEs and close to 63 million MSMEs in total (based on numbers disclosed by the MSME ministry), India gains a lot from its small and medium sized entrepreneurs. The sector alone created employment for over 110 million people in 2019-20 and accounted for 50 percent of exports in FY20. The sector also attracts a sizable chuck of the FDI that flows into the country.

Over the past few years the Indian government has created a plethora of schemes and policies in order to boost the Indian MSME and startup segment. The government has been seen pushing for growth in this segment in order to bring in a culture of innovation and enterprise. The expectations for the Union budget 2021-22 is no different. Finance Minister Nirmala Sitharaman has also promised a budget that will be unlike anything in the past 100 years.

India INC and the startup ecosystem is looking forward to the Union budget bringing along with it conducive policies to boost the industry’s growth especially post the Covid crisis.

Ankur Bansal, Co-founder and Director, BlackSoil believes that Fiscal budgets are growth driven but due to the severe impact of Covid-19, focus should also be to reinstate stability alongside growth. “Tax deductions should be promoted on R&D expenses that can make Indian business more competitive and encourage economic recovery. Real estate investments should also be encouraged in affordable housing segment,” he adds.

Ankur also points out that India has extremely high capital gains and dividend taxes which often force investors to urge Indian businesses to shift headquarters to low tax jurisdiction such as Singapore. He suggests that taxes should be kept low to inhibit transfer of Indian startups to other countries and regulations imposing double taxation such as capital gain and dividend taxes should be reduced.

Jatin Desai, Managing Partner, Inflexor Ventures is of the opinion that the startup ecosystem has received strong support and encouragement from the Government by way of Startup India program, taxation relaxations, GeM portal, grants / funding and various other schemes. “Of course, there is always more that can be done via the upcoming budget, like encouraging entrepreneurship, easing FDI / FEMA, overall ease of doing business and making startups an integral part of Atmanirbhar Bharat initiative,” Jatin adds.

Ease of doing business is one area where we need more attention. Deepak Gupta, Founding Partner, WEH Ventures weights in, "One area which has implications for growth and job creation is the ease of doing business ("EODB"). Within that India lags substantially relative to most in the area of enforcement of contracts- there are many elements to resolving this issue- from accelerated recruitment of judges to improvement of arbitration processes and others.

We hope that action can be taken on this front in short order with specific pronouncements in the budget and follow-up from thereon. There are other things in EODB which can also be pursued- e.g the websites of government agencies that deal with the public tend to have downtimes (sometimes at peak filing season)- an impetus on measuring the user experience and uptime and targeting improvement could perhaps save time and give us a leg-up in EODB. "

Ankur also opines that the Indian government should participate more in terms of easing out of regulations. He adds, “Currently, all inflows and outflows of funds must adhere to RBI scrutiny, reporting, and limits. Large institutional investors have such resources, however, it is a real hurdle for small investments where compliance cost can diminish returns. Thus, changes are required to make smaller investments more cost efficient for foreign investors to boost volume of funded startups.”

a majority of businesses rely on foreign enterprises for both sale and consumption of products & services. However, regulations mandate that even an import payment worth $100 warrants a CA certification. Ankur suggests that Indian startups frequently need to purchase foreign services and products to remain competitive and GOI should introduce changes to make low value foreign transactions easier.

Let us wait and watch what the Union budget has is store for the Indian startup landscape.