Budget 2016: To boost innovation, FM needs to unveil meaningful and specific proposals

By Paula Mariwala The government’s recent Startup India event, followed by a slew of announcements to accelerate and energize the ecosystem has certainly excited the startup community in India. However, the devil is in the detail.  A well laid out implementation plan with clear and consistent guidelines needs to be articulated in the budget to make these announcements meaningful and truly unleash the entrepreneurial energy of the country. Following are some of the main issues which should be addressed in the budget: [caption id=“attachment_2630664” align=“alignleft” width=“380”]  Representational image[/caption] Investment Boost: The Government’s proposal of creating a Fund of Funds is aimed at providing a stimulus to early stage investment by make more capital available.  However, the details on the functioning of this fund are not clear.  We expect the budget to provide a detailed roadmap of infusing these funds with minimal bureaucratic and regulatory intervention. In addition, the government should announce specific financial allocation and related policy for investment in accelerators and incubators which are required to nurture innovative ideas. Debt Availability: The current financial system makes it virtually impossible for early stage companies and small businesses to secure capital in the form of debt. The government should carve out some debt instruments specifically aimed at such young companies and explore alternate ways of raising funds like Venture Debt. Ease of Business: Regulatory roadblocks and compliance headaches are universal pain points for all businesses in India. The government needs to pave the way for reducing these and making it easier to start, run and exit businesses.  Failing is an integral part of entrepreneurial journey, but one needs to fail fast and move on. Current laws make it very difficult to both start and close businesses.  This needs to change, and once again, clear and consistent guidelines need to be given in the budget. Tax incentives: Investor-friendly tax regime is required to encourage more people to make high risk investment in early stage companies. Hence, angel tax should be removed and other tax incentives should be introduced to promote angel investing as a viable alternate investment. This will help start-ups explore funding options from individuals other than institutional PEs and VCs who have much more stringent terms of investments. In addition, the budget should rationalize capital gains tax for private and public investments.  Similarly, the announcement of three year tax holiday for start-ups needs to be extended so companies can really take advantage of this when they become profitable.   Removal of service tax and some other taxes and introduction of GST will make it much easier for start-ups to manage their business models. Access to Rural and BoP Consumers: Special initiatives for rural markets and sectors like healthcare, agriculture and sustainable energy will open up new opportunities, resulting in innovative businesses and technologies to address markets at the bottom of the pyramid.  This should be be backed by large investment in improving the last mile infrastructure across the country, including substantial focus on providing better digital connectivity across the country. Infrastructure Investment: Overall investment in improving infrastructure of roads, power, telecom, healthcare, education and skill development will catalyze the growth of industries across sectors while will remove many logistics and operational pain points of companies. Education and Skills Development: Human capital is as much the need of the hour as financial capital. To build sustainable businesses, access to trained, skilled manpower is a must. The government needs to invest in skill development and education along with innovative private public partnerships to develop the much-required human resource pool and maintain our competitive advantage as a startup nation. Investment in Basic and Applied Scientific Research: Any country which does not promote scientific research will not be able to produce disruptive technologies which provide the platform for innovation. While VC funds can sponsor business incubators, technology incubators need long gestation and patient capital which can only be given by government agencies. Programs like SBIR of the US government can give a huge momentum to research driven companies. The government must pay attention to this or else India will always remain a “Me, too” innovator, piggy backing on such innovations which largely come from the West. We need to create a vibrant environment for original innovations to take Startup India and Make in India beyond mere catchy slogans. We hope the finance minister can enable this by unveiling meaningful and specific proposals in this budget. (The author is Managing Director, Seedfund; President, Stanford Angels & Entrepreneurs India)