This year’s Union Budget has been crafted under an unusually challenging economic environment, one that India has not seen before. The external environment is both uncertain and volatile, the holdup caused by banks and private sector, which are under immense stress has yet to be broken and the poor monsoons which have caused rural distress. A lot of the measures that were required to combat these issues are not limited to only budgetary changes. However, a Union budget is always of political interest, on three key points. Our government’s previous budgets have always been criticized for their lack of clear frameworks and guidelines. The final questions that have cropped up in the minds of the public are; does this budget break new ground? Does the budget signal any appetite for political boldness? Which constituencies does the budget address and which will be the most affected? There was a general euphoria that, for the first time, in any budgetary session in India that one of the most crucial pillars was “Ease of doing business”, which is another step forward to a stronger Indian economy. Going one step further, the government has amended the companies act to improve the environment for start-ups.
On the start-up front, there haven’t been as many changes as one would have expected from the budget. What has been promised from the ‘Start-Up India, Stand-Up India’ campaign, with regards to the tax holiday for the first 3 out of 5 years from incorporation on profits made, has played a pivotal role in this year’s budget. Although one recurring question with entrepreneurs everywhere is; “Even if I have incorporated my company in the last 6 months, I haven’t made any particular progress in terms of brand and customer acquisition because I am still building my product. Can I re-incorporate my company post 1st March 2016 to avail of these benefits?” The answer to this is, of course! A company could be re-incorporated in this case, making it eligible for 100% deduction of profits during three of your first five years. If, in the event the entity does turn hugely profitable during this time, it would be a hefty bonus. However, the truth is that not a lot of start-ups manage this in their opening five years. What must also be considered is the tremendous amount of time it takes to closing the existing entity prior to re-incorporating it as a new one.
As has been said many a time before, enabling young entrepreneurs will ultimately lead to increasing India’s innovation potential, creating employment and will become an alternate to the conventional economic model of depending only on the few, large corporate entities for jobs and investments. The focus is now on investing in the youth by improving their skills over the next 3 years under the Pradhan Mantri Kaushal Vikas Yojana and also in improving the access to capital for entrepreneurs, particularly for those in rural areas. This is to be taken forward with the proposal that about 1500 Multi-Skill Training Institutes must be set-up and also the focus on digital literacy through the National Digital Literacy Mission and the Digital Saksharta Abhiyan, tax reliefs to companies hiring those who are unemployed with salaries below Rs 25,000. Keeping in pace with the focus on youth and employment, the budget has also singled out support for the SC/ST community, women entrepreneurs, and minorities by giving form to the ‘Stand-up India’ initiative. Under this initiative, a sum of Rs 500 crore is to be allocated to provide financial support for such entrepreneurs. It additionally, also requires two projects to be promoted per bank branch in each category of entrepreneur under this scheme.
In summary, the Union Budget 2016 pushes ahead Prime Minister Narendra Modi’s belief that the future of our country lies in the hands of the youth of India, and that this can only be done by empowering them with skills, enterprise and jobs. While this is sure to boost the spirit of entrepreneurship in our country, entrepreneurs, especially those starting their first company, have to be very careful about the short and long term implications of these provisions. We suggest that startups pay special attention to the legal, compliance and diligence side of their businesses to really capitalize on these subsidies. We are also hopeful that the other promises made during the ‘Startup India, Standup India’ event earlier this year still remain on the table, especially the single window system for company incorporation, are measures that will actually make ease of doing business a remarkable pillar of the budget in 2016. Some very exciting times for startups in our country and hopefully this will also stem the growing trend of companies looking at foreign markets to incorporate themselves.
About The Author:
Hrishikesh Datar, Founder and Chief Executing Officer at Vakilsearch, from National Law School, Bangalore, leads the company’s business from the helm. His insights about the business and his in-depth knowledge of the industry contribute extensively to the strategic vision of the company. So appreciated was his idea of online legal assistance that CNBC TV18 featured Vakilsearch on its longest running entrepreneurial show, Young Turks. As part of the long term plan, Hrishikesh is constantly trying to identify the next innovation in legal professional service delivery. With unbound support from the team, Hrishikesh has taken on the challenge of building a billion dollar company in India which aims to change the way consumers in India view legal professional services.