Financial Express | February 3, 2020 | An article by Sunil K Goyal

Union Budget 2020 India: It has often been said that there is many a slip between cup and lip. The Union Budget 2020, presented by the Hon’ble Finance Minister on Saturday, proved that the saying is as applicable today as it was whenever it was first coined. Between intent and impact, the gap continues to grow – especially from the perspective of startups and investors. A huge missed opportunity is that of triggering job creation, something that was foremost in everyone’s mind. While venture capital and startups are about wealth creation, they are also about job creation. While the Economic Survey stated respect for wealth creators and was reiterated by the Finance Minister, the Union Budget completely missed the opportunity to rekindle animal spirits in entrepreneurs and startups.
We need to realise that with more and more money flowing into the secondary shares of listed securities, we do not create additional jobs. With another FPI investing in the shares of corporates, the share price does go up, but this additional flow does not result in initial capital for job creation. These days, even IPOs are not contributing towards running the venture and creating other employment as, most of the time, existing investors are selling their shares to the public. Jobs are created when venture capital and private equity make fresh capital injection for starting, running and growing a business.
Our startup entrepreneurs survive on minimum salary while building their startups. They sacrifice a great deal and have to bootstrap even after initial rounds of funding to get paid for kitchen expenses. They make capital gains once in 5-10 years. At that point, they will end up paying ‘super-rich’ tax versus no such charge for investors investing in liquid listed shares. They work hard to create jobs, take immense risks in running a venture, hold illiquid security, yet we insult them by applying the super-rich tax when their income from capital gains maybe once or twice in a lifetime. Super-rich tax had to be removed on unlisted securities too but did not happen. Sadly.
Startups attract talent with a compensation tool like ESOP. The Finance Minister seemed to announce that ESOPs are exempted for payment of tax on their being exercised. But this benefit has been extended only to a few eligible startups that have inter-ministerial approval. Over 90 per cent of startups do not qualify for this exemption.
The Budget has also expanded the sources of tax collection with the expansion of the definition of a non-resident, applying TDS on a new set of transactions, expanding the scope of withholding tax, and the source-based taxation. We appreciate a more comprehensive and broader tax net. However, the assumption in the government that this is the best-deployed method of capital is not acceptable. Our long-standing request of allowing charitable institutions, endowment funds and pension funds to start allocating capital for venture capital and private equity via SEBI-registered AIFs did not even find a mention.
Here, it is pertinent to note the Indian ethos of doing business. I belong to a Baniya family; we are taught to do business with our own capital and with nil to negligible debt. Similar is the case in Marwari and Gujarati families and many other Indian communities. This zero-debt policy has further been appreciated in the last few years with winning businesses bringing zero debt to their balance sheets.
India needs thousands of venture capitalists to stimulate the self-employed and entrepreneurs to be able to make it big. At a mass level, a street vendor may be able to get a loan under a micro-finance institution but the best expansion capital will be when the venture capitalist partners as a shareholder. Equity capital allows them to grow instead of pushing them to service the debt by paying interest and returning capital. The winning street vendors or entrepreneurs with equity funding can continue to multiply their outlets. Imagine venture capital reaching this level from limited access to the startups in the area of deep-tech, tech-enabled or consumer brands.
To conclude, as a deep-tech venture capitalist I am delighted to note the initiatives around quantum computing, artificial intelligence and data analytics. Government has the maximum access to data and the best use case of autonomous decisions using AI can be achieved by it faster than any private entity. Our government can become a role-model for AI use cases and for machine-led objective and auto decisions. The next global power will be a country or a corporation having access to quantum computing, being a nuclear power will be much less relevant. The Rs 8,000-crore fund for quantum computing is an exceptional initiative. Our request is that this budget allocation should not be allowed to expire if not used within the next year. Let it be a long-term corpus available for thinkers and policymakers to build a long-term sustainable strategy.
I would, once again, request the Finance Ministry and our policy-makers to shift their attention to the tools of job creation, to rewarding all wealth creators, attracting talent to join startups, and have a long-term allocation for technology initiatives. If we are to remain a startup nation, we must start now.
Budget 2020 was a huge opportunity missed by FM Sitharaman to help startups create more jobs