Union Budget 2021: A Boon or a Bane for IT and Tech Startups

Indian tech start-ups, many of which suffered heavy losses due to the pandemic, have much to cheer as the Union Budget 2021-22 is significant in more ways than one, going by the announcements targeted to strengthen the dream of ‘Digital India’. Kunal Kislay, CEO, Integration Wizards Solutions gave his views on the budget from the IT sector’s perspective. Kislay said that even a cursory look at the Budget draft underscores the government’s intent of taking the nation into a more transparent, more comfortable, more prosperous, and more digital age.

According to Kislay, the announcements will not just give a fillip to India’s IT and tech startups but also help the country in realising its dream of self-reliant India. A few major budget developments backing the claim according to Kislay are –

  • All Budget-related information has been made available at the National Informatics Centre’s Union Budget mobile app this year.
  • Greater thrust on innovation and R&D. The Budget promises an outlay of Rs 50,000 crore over 5 years in setting up the National Research Foundation to boost the research ecosystem in the country.
  • Introduction of Production Linked Incentive scheme to boost India’s manufacturing prowess. Under the scheme, a massive Rs 1.97 lakh crores will be spent across 13 sectors to provide impetus to domestic manufacturing. The implementation details of the scheme are yet to be made clear though.
  • Setting up a fintech hub at Gandhinagar Gujarat International Finance Tec-City (GIFT) International Financial Services Centre (IFSC) — commonly known as the GIFT City. The move is aimed to provide a platform for fintech startups to expand globally and access capital. If executed right, this initiative can address the fintech industry challenges — including strenuous compliances deterring fintech entrepreneurs from setting their businesses, especially the ones with lesser capital, fewer fund raising avenues, accessibility of Indian fintech advancements to rural India.
  • Enhancing digital payments. The Budget has earmarked Rs 1,500 crore to incentivize digital payments. It is worth mentioning that UPI transactions in the country clocked close to 2.3 billion transactions in January, up from 2.23 billion in December, according to the National Payments Corporation of India.
  • The finance minister announced that cutting-edge tech — including Artificial Intelligence (AI), Data Analytics (DA), and Machine Learning (ML) and MCA-21 version 3.0 — will be launched to have additional modules for e-adjudication, consultation, and compliance management and monitoring.
  • With regards to governance, the Union finance minister dropped a hint that the 2021 Census is likely to be held digitally for the first time in India. The move will boost the software firms that run and build the technology-enabled backend. The government has allocated Rs 3,768 crore for this. The finance minister also laid stress on the adoption of technology in government bodies to make them technically sound.
  • For all the start-ups working in the area of ‘green tech’, the government announced a reduction in taxes on eco-friendly and energy-efficient products. Additionally, a waiver of customs duty on imported inputs to make components was also announced in the Budget.
  • To boost local ventures associated with smartphone manufacturing, the government announced a 2.5% import duty on some parts of mobile phones and chargers. While the duty is moderate, the step is likely to force international companies to shift their manufacturing bases to India.

How Announcements Related to MSMEs Help

Kunal further says that ranked 23rd among the global startup ecosystems in the StartupBlink Ecosystem Rankings of 2020, it must come as no surprise that India has a very considerable percentage of ventures working in fields like social networks, mobile technologies, analytics, cloud computing, augmented reality, Internet of Things, robotics and other such digital arenas. A majority of these start-ups fall under the Micro, Small and Medium Enterprises (MSME) bracket and thus, any policy or scheme that benefits the MSMEs is certain to help the tech industry as well.

BudgetKunal Kislay

“The slew of measures announced for the start-ups accompanied with a greater focus on digital infrastructure in the Union Budget 2021-22 is most likely to make India a nation of many more Unicorn tech startups.”

Kunal Kislay, Co-founder & CEO, Integration Wizards Solutions

According to Kunal Kislay, among the key announcements made for the MSMEs in the Union Budget 2021-22 were — outlay of Rs 15,700 crore for the MSME sector, review of more than 400 old custom duty exemptions, rationalising exemptions on import of duty-free items as an incentive to exporters, increasing the limit for tax audit from Rs 5 crore to Rs 10 crore to further reduce compliance burden, setting up a conciliation mechanism for quick resolution of contractual disputes, facilitating flow of credit under ‘Stand Up India’ to SCs/STs and women by bringing down the margin money requirement from 25% to 15% and incentivising the incorporation of one-person companies. The Budget also focuses on healthtech and mentions a pan-India healthcare portal for digital health management.

Digital is the future

Kunal further said that as for India, the IT sector in the country has grown leaps and bounds in the past decade due to global competence, growing importance of offshore business model, sustained quality of deliverables, and favourable government policies. The sector is also a big employment generator. In the coming years, the tech ventures in India will be the enablers of almost every welfare scheme and drive the country’s economy. The AI-driven warfare has also replaced the conventional Army combats and thus, technology will be at the forefront of the country’s defence strategy.

Kunal Kislay concluded that It is thus pertinent for both state and central governments to invest heavily on innovation and R&D while encouraging private firms coming up with innovative tech solutions. The slew of measures announced for the start-ups accompanied with a greater focus on digital infrastructure in the Union Budget 2021-22 is most likely to make India a nation of many more Unicorn tech startups. This is definitely a step in the right direction but there is a long road ahead.

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