Tech startups get Rs 1,000 crore fund, but several wishes left unfulfilled

Sector leaders cheer "positive intent"; say disbursement of fund will be key

While the word 'startup' managed to make its way into the Union Budget speech for a second year in a row (after making its debut last year), a majority of wishes that were made by the Indian tech start-up sector went abegging.

Sector leaders, however, believe that the biggest victory for them is perhaps a “positive intent” of Finance Minister Arun Jaitley, who acknowledgement, twice over, that there is a need to nurture a favourable investments and business environment for technology startups and young entrepreneur.

The most significant announcement for tech startups in the budget was the proposal to set up a 'startup fund' with an initially corpus of Rs 1,000 crore. 

“We propose to establish a Self-Employment and Talent Utilization (SETU) as techno-financial, incubation and facilitation programme to support all aspects of start-up business. Rs 1,000 crore will be set aside as initial amount in NITI (National Institution for Transforming India),” Jaitley said in his speech.

While details are still awaited, there's anxiety in the industry over the disbursement and future roadmap for the fund.

Anxiety over the fine print is high particularly because the government had last year announced a corpus of Rs 10,000 crore for startups (which included technology and non-technology), but there has been no significant disbursement from the same yet. A few weeks ago, some reports had suggested that the government may make some disbursement out of the corpus soon.

“We are hoping that there will possibly be a fast and efficient disbursement of this fund, and it will perhaps be at a pace that by next year's budget, we have used a substantial part of the corpus,” said Ravi Gururaj, the chairman of industry body Nasscom's software product conclave. “I think the big positive as far as this corpus is concerned is that the government has re-stated its intention and identified a more realistic course.”

Additionally, the finance minister acknowledged the need to support startups, which he said would help in making “our youth job creators instead of job seekers”. For the same, he proposed to undertake “a series of steps” to attract domestic and foreign capital for smaller companies, including tech-startups, which would boost employment opportunities in the country. 

“Tax ‘pass through’ is proposed to be allowed to both category-I and category-II Alternative Investment Funds, so that tax is levied on the investors in these funds and not on the funds per se,” Jaitley said. “This will step up the ability of these funds to mobilise higher resources and make higher investments in small and medium enterprises, infrastructure and social projects and provide the much required private equity to new ventures and start-ups.”

The budget also proposed a reduction in the rate on income tax on royalty and fees for technical services to 10% from 25%, which Jaitley said was to ensure “young entrepreneur running business ventures or wanting to start new ones” get access to “latest technology”.

“The measure around royalty may not help everybody, but then any move to reduce the burden on younger companies is positive,” Gururaj said.