Monday 7 March 2016

India's e-commerce founder finds nothing exciting in budget for start-up

Start-ups registered after April 1, 2016, will get 100% income tax exemption in any three of the first five years. I am not sure about this.
At first glance, there's really nothing exciting in the Budget for start-ups in general or e-commerce industry. There were a lot of expectations, but to be fair it was impossible for the finance minister to make any announcement on the two top items that could have had a real impact: GST and FDI in retail (including B2C e-commerce). The first will require Opposition parties' co-operation in passing the Bill and the second is an issue that impacts the Bharatiya Janta Party's merchant support base and may require some more political maneuvering.
Having said this, there were a few interesting announcements.
As a follow up to the glittering Startup India event, the Budget has several things to make life for entrepreneurs easy. The most important out of these for me was the promise of a Bankruptcy Code this year. Around 95% of start-ups shut down and the process of closing down a company in India is a torture. Coupled with the announcement that there will be amendments to the Companies Act that will allow startups to set up a company in a day sounds really encouraging.
There's special focus on encouraging SC/ST entrepreneurs and bank branches can fund up to two such projects. To support the startups to get their projects off the ground and scale, there's a promise of MOOCs (massive open online courses) to teach entrepreneurship in schools and colleges. This is another follow up on Startup India but to source great content and monitor quality of implementation across India will require serious execution by whoever is nominated for this. I like the intent but execution will be very tough.
Start-ups registered after April 1, 2016, will get 100% income tax exemption in any three of the first five years. I am not sure about this. To qualify as a start-up in India, you have to incur huge losses which in turn help you raise massive funds from big-ticket investors, build a strong brand image, become a poster boy and create a world-beating unicorn. Okay, I made this up, but it does beg the serious question: why would entrepreneurs worry about a few lakhs of income tax savings on profits against billion dollar valuations gained through losses? This announcement sounded more like a humour break in a serious session.
I like the Rural Digital Literacy Vision. Over six crore households will get access to computers and online trading platforms will be set up for farmers to trade on. This will expand the potential customer base for e-commerce firms since digital familiarity will lead to commerce soon enough. It is also an opportunity for Indian e-commerce firms to join hands with the government and help set up such rural trading platforms.
I also like the infrastructure focus of building more roads quickly, dedicated freight rail corridors and also the plan to develop over 160 smaller airports. All these steps should make movement of physical goods easier and help the e-commerce industry manage deliveries better and faster although it is still sometime out in the future. The more immediate impact though may come from the additional savings in the hands of people living in rentals in towns and cities, a part of which can be spent shopping online.
But the most important news for e-commerce firms is a hidden message and I hope the industry will notice it. The government has chosen to go for fiscal prudence and gross deficit is being maintained at 3.5%. This is awesome keeping in mind the expected financial headwinds globally. If the government can tighten their belts, surely modern young e-commerce firms can also show some financial discipline, curb wastage, focus on sustainable earnings and not just depend on supply of external capital to fund ever growing losses.
I am not sure if it was intended, but to me, this is the essence of the budget for the e-commerce industry.
The writer is founder of India Plaza, the first e-commerce venture in the country

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