Jaitley provides tax breaks to startups and SMEs, but their concerns remain

The economy has turned a corner; what is required now is acceleration

Published: Feb 2, 2017

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Image: Shutterstock.com (For illustrative purposes only)

The Union Budget 2017 seeks to strengthen the push to a digital and cashless economy. It is good on intentions and takes baby steps towards a digital India, the move which was kick-started with the demonetisation drive. The Budget, which revolved around farmers, youth and affordable housing, also provided tax exemptions for SMEs and startups.

Small and medium enterprises (SMEs) got a drop of 5% on tax rate, which according to Finance Minister Arun Jaitley, would benefit 96% of businesses. Such moves have been welcomed by the industry. SMEs and startups form the bulk of the middle class and employ more than 40 percent of India’s workforce. The skill upgradation program and tax relief for the MSMEs are steps in the right direction.

“I welcome Budget 2017 and its provisions. Increased spending on rural economy would help India in the long run. The Finance Minister has pushed for a Digital India and seeks to encourage cashless economy. I am hopeful the Budget would provide the much-required boost to the economy. However, I was expecting more policy measures for SMEs, particularly in the IT sector, at the grassroots level,” said Shashank Dixit, CEO, Deskera, a global provider of cloud software.

Institutional reforms are required for the growth of the SME sector, which continues to be unorganized and unregulated. They face basic issues, including red tape, institutional apathy, and insufficient financial support. Budget 2017 should have done more to improve the ease of business for SMEs and startups. The startup ecosystem was hoping for a more energized plan. Investments have been falling while a majority of the startups continue to underperform. As many as 85% of startups flounder due to factors such as lack of a viable business model or financial crunch. The primary concerns of SMEs and startups also need attention. The Startup India plan has seen interest waning.

The government needs to stem the downward spiral in the startup ecosystem. Institutional reforms and better ease-of-doing business are needed, which would increase the profitability of small businesses and help loss-making startups. The government should bring together various stakeholders of the sector and listen to their problems and then formulate an action plan to address them. Overall business climate has to improve.

Looking at the bigger picture, the startup ecosystem and the SME world have hailed the Budget as forward-looking and as improving the overall business environment. The economy has turned a corner; what is required now is acceleration. However, larger questions about providing a definitive direction to the sector and institutional reforms remain. Perhaps, Budget 2018 would take more progressive steps in that direction and accelerate the digital transformation of the country.

- By Muqbil Ahmar, Technology Evangelist

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