On 1st February, India’s Finance Minister Nirmala Sitharaman has presented the Union Budget 2021 with a focus on digital transformation and the upcoming phase of economic recovery after the Covid-induced market recession. Even she ditched the bahi khata which led to a major conversation point at the time of the longest budget speech ever last year and went with a ‘Made in India’ tablet. The main focus was also around the key sectors in the digital economy that increased the spending for healthcare, education along with the employment generation in manufacturing and infrastructure.
While delivering her budget address, Finance Minister projected a fiscal deficit of 6.8% of gross domestic product for 2021-22. Well, the current year was expected to end with a deficit of 9.5%. She said that earlier it was expected a sharp rise from the 7%. In spite of this, she was confident about the recovery of the Indian economy.
Previously, the economic survey has portrayed a GS+DP growth rate of 11% for the fiscal year 2021-2022. Is the government’s spending boost gives the thrust to key sectors for achieving benchmark which is remaining to witness. Let’s find out the key highlights from the 2021-22Union Budget for startups.
Key Highlights From Union Budget 2021-22 for Indian startups
The main focus areas of the budget lie on healthcare and generating employment by enhancing the government’s expenditure across various sectors as the country is struggling to bounce back from the recession due to pandemic.
Exemptions for Investors; Tax Holidays for Startups
Finance Minister Nirmala Sitharaman has proposed an extension of the tax holiday for startups by the next year 31st March 2022 at the time of her Union Budget 2021 address. She also added that to incentivize investment in startups, the government has proposed to extend the eligibility period of claiming capital gains exemption for the investment made in the startups by another year to 31st March 2022.
Notably, in the 2017 Union Budget the then finance minister, the late Arun Jaitley announced that startups that were incorporated after 31st March 2016 can avail a tax holiday for three out of seven years, starting from the date of incorporation. As per this Startups can avail this exemption provided that annual turnover doesn’t exceed INR 25 Cr in any of the financial years.
Insurtech Gets FDI Booster shots
One of the crucial decisions from the Budget was the proposal to amend the Insurance Act, 1938 to enhance permissible foreign direct investment limit (FDI) from 49% to 74% in insurance companies at the Union Budget 2021.
Moreover, this will allow the foreign ownership and control of insurance companies in the country with certain safeguards. Well, most of the directors on the boards of such companies and key management persons will have to be residents Indians. Almost 50% of directors being independent directors and a specific percentage of profits is retained as general income.
FM said that with the support and investment by the private sector these measures will create multiple effects and will carry the insurance to a larger section of the Indian population.
She also mentioned that the Foreign direct investments in insurance companies are now permitted under automatic route up to 49% with a rider insurance companies should be Indian owned and controlled which means 50% will be beneficially owned by resident Indian citizens and controlled by the insurance company might in the hands of the resident Indian citizens.
Fintech In Focus
Remarkably, the Indian Government has proposed to allocate INR 1,500 Cr to boost the penetration of digital payments and adopted measures to improve financial inclusion.
Finance Minister Nirmala Sitharaman presented the Union budget for 2021-22 which has proposed for setting up a “world-class” fintech hub near Gujarat capital Gandhinagar at GIFT City.
On the other side, the government will be introducing a bill that will set up development financial institution(DFI) with an outlay of INR 20,000 Cr for boosting credit access for small businesses, MSMEs as well as those working in areas of focus such as manufacturing and infrastructure.
Further, facilitating credit flow under the scheme of Stand Up India for scheduled castes and tribes, as well as women entrepreneurs, the government also propped reduction of margin money requirement from 25% to 15%, also includes loans for activities allied to agriculture.
A decrease in Compliance Burden On Startups
Well, the Finance Minister has also proposed to revise the definition under the Companies Act, 2013 for small companies by enhancing their threshold for capitalization from not exceeding INR 50Lakh to not exceeding 2 Cr and turnover from not exceeding INR 2 Cr to not exceeding INR 20 Cr.
Sitharaman said, “This will help more than 200K companies in easing their compliance requirements.”
With the new definition of small companies under the Companies Act, a large number of Startups shall be predicted as small companies. However, the small companies will enjoy certain benefits over other companies in terms of compliance requirements. Notably, a small company requires to hold only two board meetings in a year, unlike other companies there is a need to hold four such meetings in the same period.
Moreover, in a separate announcement that compliance burden on startups, Sitharaman propped to make use of data analytics, artificial intelligence, machine learning for making a regulatory filing which is more frictionless for business and startups in a refurbishment of the ministry of corporate affairs portal. Even the government said that the ministry might look for introducing AI-based features in MCA-21 when version 3.0 of the portal which rolled out.
The MCA-21 3.0 is expected to have features such as a single source of truth, ease of doing business, e-adjudication, online compliance monitoring, among others. For the startup ecosystem, this is crucial as MCA-21 shares crucial information to various stakeholders such as the regulators, investors, and companies. All these targets to ensure authenticity and also these filings lie under the various laws of the companies and business in India.
Focus On Healthtech; National Health Portal
To bridge the urban-rural healthcare divide, Sitharaman announced a total allocation of INR 2.23 Lakh Cr for healthcare and wellness initiatives in the country during the Union Budget 2021-22. The plan includes a pan-India healthcare portal for digital health management.
The budget allocation increased by 137% over the previous year. The FM also announced Aatmanirbhar Health Yojana with an outlay of INR 64,180 Cr over 6 years. She proclaimed operationalization of health units at 32 airports, 11 seaports, and 7 land crossings.
The budget also allocated INR 35,000 Cr for Covid-19 vaccination. “Expansion of the integrated health information portal to all states and union territories to connect all public health labs,” said Sitharaman.
Swift Digitalisation Underway In Agriculture
Sitharaman publicized that around 1.68 Cr farmers have listed on the government’s e-agriculture marketplace — eNAM, recording a transaction worth INR 1.14 Lakh Cr.
Additionally, she specified that the eNAM platform presently has more than 1000 mandis. “With all this, the agricultural infrastructure fund would be made available to AMPCs or Mandis, augmenting their infrastructure facilities,”
Established in April 2016, eNAM is an e-trading gateway that unites physical wholesale markets through a virtual platform, building a unified national market for agricultural produce, where farmers can trade their yield at a translucent and competitive price, online.
As the government is at the receiving end of farmers’ for the three controversial agriculture reform laws that many considered will hurt bottom support prices (MSPs) in the long run, the finance minister declared measures to calm concerns.
Sitharaman conveyed, the MSP administration has undergone a “sea change” to assure price at least 1.5 times of production cost with a sharp upsurge in earning of foodgrains and payment to farmers. In her budget speech for the next fiscal, she said the procurement of crops like paddy, wheat, pulses, and cotton has jumped manifolds in the last six years.
Enhancement For Electric Mobility; Railways
Finance minister Nirmala Sitharaman proposed 100% electrification of railways by 2030 along with plans to lift the share of public transport in urban areas during the Union Budget 2021 address. The government has declared an outlay of INR 18,000 Cr for the same for the 2020-21 period.
The FM allocated INR 1,70,000 Cr as budgetary allocation for the transport sector for 2020-21. She added that the National Highways Authority of India (NHAI) will be fortified to pursue “greater commercialization of highways to raise finance”.
Besides proposing highway works in several states such as Tamil Nadu, West Bengal, Kerala, and Assam, all incidentally poll-bound states, the Minister also talked about bringing in metrolite and metroneo technologies, which are rail-guided urban transport systems with rubber-tyred electric coaches powered by an overhead traction system running on elevated or at-grade sections, in tier 2 and tier 3 cities.
To lift the adoption of EVs and modern low-emission vehicles, the government also started a voluntary vehicle scrapping policy to phase out old and flabby vehicles. Sitharaman said, “This will help in encouraging fuel-efficient, environment-friendly vehicles, thereby reducing vehicular pollution and oil import bill,”
Vehicles would undergo aptness tests in automated fitness centers after 20 years in the case of personal vehicles, and after 15 years in the case of commercial vehicles.
Expansion Roadmap or National Education Policy
Taking forward the National Education Policy (NEP) publicized in 2020, Finance Minister Nirmala Sitharaman said during the Union Budget 2021 address that the government will outspread this programme through specific schools for regional implementation of the policy. The FM also announced actions to improve skill development wits across the country.
Over 15,000 schools will be qualitatively reinforced to comprise all components of NEP. They will handhold and mentor other schools in their region. She proclaimed that 100 new Sainik Schools will be set up in partnership with NGOs, private schools, and states.
While taking forward the plans to set up a Higher Education Commission announced in last year’s budget, Sitharaman declared that legislation for the same will be implemented in 202 which will be an umbrella body for standard-setting, endorsement, regulation, and funding.