India has approximately 6.3 crore MSMEs – a major contributor to the social and economic development of the country. Zoom into the year 2021 and you see a record number of tech startup IPOs and unicorns in India.
As per the latest numbers, India is now home to 84 unicorns with a total valuation of $286.27 billion. 44 unicorns with a total valuation of $ 90.67 billion were born in 2021 itself and three unicorns with a total valuation of $3.10 billion have been added recently in 2022.
The ease of doing business and the many initiatives introduced by the government in the last few years have bolstered the growth of startups and MSMEs in India. It has emerged as the third-largest ecosystem for startups globally with over 62,200 DPIIT-recognised startups across 636 districts of the country.
Despite the pandemic, these startups and MSMEs are emerging as major contributors to the economy. They also have the potential to serve as a key employment generator for India, creating thousands of opportunities for the young workforce. But to fuel their engine of growth they seek more support.
What are small business entrepreneurs expecting from Budget 2022? Let’s find out.
Taxation simplification & digital enablement to improve the startup ecosystem
“Even with rising unicorns, one of the biggest challenges that we see today is that the startup ecosystem as a whole lacks a compelling revenue base,” said Nirav Choksi, Co-founder & CEO, CredAble.
To tackle this challenge there is an urgent need to infuse cash flow into the startup ecosystem. “Additionally, tax exemptions in FDIs would be a welcomed move that will further aid in the globalization of these startups,” Nirav added.
Adding to this list of expectations, Nitin Sharma, CPTO & MD emphasised on, “Increasing the collateral-free loan limit, simplifying taxation and steps towards quick digital adoption and automation in financial operations to strengthen the MSMEs’ local and global supply chains.”
While small businesses continue to grow they till face unprecedented challenges, from supply chain uncertainties and changing customer expectations.
“Reduction on import tariff is something we are expecting, this will help us compete with countries like China, Mexico, Thailand and more. In the last two years, the PLI schemes have provided momentum to domestic and international investments, but so the investment from the Government side for infrastructure building will boost the ‘Make in India’ movement. We have to integrate India into the global supply chain scenario, to achieve that tariffs should be equal or less than competitive markets,” said Vijay Kumar Mikkilineni, Head of Marketing, TCL India.
Hamish Patel, Chief Product Officer, World of Play echoes a similar thought, “On the supply side, a much-needed relief would be to waive customs duty on the import of electronic components. This will provide a boost to a growing electronics manufacturing sector and relieve stress that has built up over the last 18 months.”
The pandemic has nudged MSMEs to embrace digital ways of doing business and working.
A new wave of digitisation and innovation has hit small businesses and, in the past 12 months, many of them have upgraded their technology with websites for consumer transactions and listing products and services, and by scaling their back-end systems.
A report by LocalCircles revealed how digitisation has helped MSMEs and small traders in reaching new customers and increasing transactions with their current pool of customers.
Small businesses need more digital push to compete with large enterprises with deeper pockets.
"Due to the increased push toward digitalization, the usage of AI across industries has increased remarkably. While the previous two budgets had recognized the importance of technology in shaping the new India, we now anticipate opportunities and significant government efforts to locate India as one of the world's preferred AI attractions this year,” said Aakrit Vaish, Co-Founder & CEO, Haptik.
Indian Startup Ecosystem has seen exponential growth in the past few years. But like other sectors they also continue to grapple with the shortage of talent and skills.
Subsidized programmes & access to skilled talent to drive more growth
As small businesses continue to grow and compete with larger enterprises and MNCs, for the same talent, they must invest in improving their talent processes and policies, give more power to HR, and explore ways of enhancing their employee value proposition to attract and retain top talent, maximise productivity and performance, and drive better business results with more skilled talent.
Among other challenges, lack of resources is a key barrier hindering MSMEs’ growth.
Nitin said, “The government should also help MSMEs procure cheaper raw materials and human resources through subsidized programmes.”
While startups have the opportunity to create employment opportunities, they don’t have access to skilled talent that can help them drive business growth in the evolving and more digital business ecosystem. While freshers lack fundamental skills, the experienced talent might not be familiar with the latest technological know-how.
Sai Srinivas, Co-Founder and CEO, Mobile Premier League (MPL) said, “The industry will benefit from a fund that can provide capital to talented developers and designers, putting India on the path to becoming the hub for game development globally.”
Access to infrastructure will be crucial in this regard. He recommends establishing specialised AVGC Centres and Universities for talented designers, visual artists, and developers who may have the capabilities but not the resources to build world-class games.
“We hope that this year will bring more clarity from a regulatory standpoint. Online skill gaming suffers from a lack of differentiation from prohibited categories and games of chance. A uniform policy will be welcome and provide much-needed stability to the sunrise sector,” added Sai.
Investing in human capital is emerging as a key priority for not just companies but the entire nation.
“With the rate of technology disruption and the major rise in digital adoption in the past 18 months, a large section of employees is at the risk of being made redundant. This has accelerated learning among employees to a great extent. The upcoming budget must provide adequate policies and measures to facilitate this move to ensure that employees are made future-ready. If you think radically, give both employees and organisations a tax incentive for investing in learning opportunities,” said Margaret Dsouza, Head HR, Zeta.
Tax incentivisation for startups and companies investing in learning opportunities has been highlighted as a key ask by founders and HR leaders of small companies.
Sujith Narayanan, co-founder, Fi reiterated the need for skilling and tax incentivisation, “The budget should incentivise startups to up-skill their employees and gig workers by providing tax credits to the extent that a firm invests in its employee education.”
He further added that the budget should also provide tax SOPs such as lower or zero GST on services when firms partner with ed-tech platforms to up-skill their workers.
Both these measures have the potential to improve the employability of the workforce while driving growth for businesses and the economy as a whole.
While the leaders are looking forward to more incentive schemes, simplification of the tax system, subsidised programmes, and more digital support, let’s see what the Budget 2022 has in store for startups and SMEs.
Stay tuned for more updates on Budget 2022.