Budget 2022: Startups, tech for sustainable development get attention

The government will release a policy on battery swapping and standards for interoperability of electric vehicles (EVs) infrastructure that will accelerate the shift from fossil fuel-burning vehicles to EVs
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India’s Minister of Finance Nirmala Sitharaman didn’t make any blockbuster announcements with respect to the tech sector or startups in her Budget proposals on Tuesday, but certainly recognised their increased importance to the nation’s economy and to long-term sustainable development.

Her Budget proposals for the coming fiscal year, which starts April 1, included several incremental measures to make life easier for entrepreneurs, and to induct advanced technologies in multiple areas—from digital banking and military platforms to sustainable cities of the future.

Advanced technologies in multiple areas—from artificial intelligence (AI) and clean tech to genomics—“have immense potential to assist sustainable development at scale and modernise the country”, Sitharaman said. “They provide employment opportunities for youth, and make Indian industry more efficient and competitive.”

The latest Budget would be the first stepping stone for building a modern India over the next 25 years, when the nation will mark the 100th year of its independence, she told Parliament. As part of this vision, the government aims to “promote digital economy and fintech, technology-enabled development, energy transition, and climate action,” Sitharaman said.

Battery-swapping policy

In terms of specifics, the government will release a policy on battery swapping and standards for interoperability of electric vehicles (EVs) infrastructure that will accelerate the shift from fossil fuel-burning vehicles to EVs.

“The central government’s constant push for EVs and climate action is commendable, and the same outlook has been resonated in this year's Union Budget as well,” says Akshay Singhal, founder and CEO of Log9, an aluminium fuel cells and EV charging technology startup in Bengaluru. “The openness showed by the government to accommodate new-age business models like battery-swapping are a welcome step, and the push to encourage battery-as-a-service and energy-as-a-service business models will provide further thrust to emerging home-grown startups in these areas.”

Financial decoupling of batteries, irrespective of swapping, has the potential to enable faster adoption, he adds. Singhal expects climate-focussed debt lines from blended finance in the days to come. Bringing EVs and batteries into India’s ‘priority lending’ category could also have been done in this Budget, but that was one miss with respect to the EV sector, he says.

The government will also broadly encourage everyone to use public transport—in parallel developing multi-modal transport options—and also push for clean tech-based vehicles. As India rapidly moves towards a scenario where over half its people will be in urban areas, cities must be seen as centres of sustainable living, the minister said. The government will put together a team of experts to make recommendations on how this can be achieved.

Kisan drones

On the other hand, the government aims to ensure that villages have the same access to online services that are available in cities. This year, it will step up handing out of contracts to build optic fibre networks under the Bharatnet project to take broadband services closer to more villages.

Villages will also get more hi-tech, with use of ‘Kisan Drones’ (drones for farmers) for crop assessment, digitisation of land records, spraying of insecticides, and nutrients. The minister has also proposed a fund with blended capital, raised under the co-investment model, to be facilitated through Nabard, India’s bank for agriculture and rural development. This fund will finance agri-tech startups that are relevant to the farm produce value chain, she said.

Startups will also get more access to India’s defence budget, the minister said, as the country looks to design and develop more of its defence technologies locally and reduce dependence on imports. In the coming fiscal year, 68 percent of the capital procurement budget will be earmarked for domestic industry, up from 58 percent in 2021-22.

Startups for defence

Defence research and development (R&D) will be opened up for industry, startups and academia, with 25 percent of the defence R&D budget earmarked for it. Private industry will be encouraged to take up design and development of military platforms and equipment in collaboration with the Defence Research and Development Organisation (DRDO) and other organisations through a special purpose vehicle model, Sitharaman said.

To support the broader ecosystem for advanced technologies in India, the government will follow a light-touch regulatory approach in support of startups and enterprises in AI, geospatial systems and drones, semiconductors, space economy, genomics and pharmaceuticals, green energy, and clean mobility systems.

To support funding in some of these areas, such as climate action, deep tech, digital economy, pharma and agri-tech, the government will promote thematic funds for blended finance, with the government’s share being limited to 20 percent and the funds being managed by private fund managers.

And as the country moves closer to the rollout of 5G wireless, manufacturing of related technologies will be included in India’s product linked incentive schemes, the minister said.

In other emerging startup areas in India, a task force is to be set up for the animation and gaming industry. Overall, a three-year tax incentive that was available to startups that started before March this year, has been extended to include ventures that are incorporated before March 2023.

Government spend on IT

The latest Budget proposals also show that the government’s own investments in information technology will be stepped up in multiple areas, including agriculture, education, health care, logistics and procurement. Enhancements of existing online portals and platforms as well as developments of new ones are planned.

These are aimed at offering high-quality e-content for education in regional languages, setting up of a digital university, tele-mental health services, real-time logistics information and end-to-end online procurement management.

“The Budget looks at information technology as the primary enabler for growth,” says Waman Parkhi, partner for indirect tax at accounting firm KPMG in India. The emphasis is on reducing compliance, bringing standardisation—state and central government portals will talk to each other— and using IT to bring efficiency to operations in the economy, he says. This approach would require lesser additional investment, but returns in terms of growth would be much higher, he adds.

One notable area of government investment is fintech, a burgeoning sector in India. The finance minister has proposed to set up 75 digital banking units in 75 districts across the country, to mark India’s 75th year of independence. The government also plans to bring all the 1.5 lakh post office branches in the country onto a core banking system, enabling them to offer internet banking and mobile banking.