Entrepreneurs, start-ups await growth revival

Hit by the decline in economic growth, hundreds of entrepreneurs and start-ups in the manufacturing and services sectors are looking towards the central government and hoping that it will act to reboot the economy.

Industry experts say the government will have to ensure stepped up spending, particularly in sectors like infrastructure, education, healthcare and connectivity, to revive the growth.

“As the custodian of the country, the government has to initiate measures to revive the economy and spur growth. If it responds to the needs of the manufacturing and services sectors that account for over 80% of the country’s GDP (Gross Domestic Product), it will change the sentiment for good and mood for spending,” industry analyst S. Vishwanathan told IANS.

He said sudden demonetisation in November 2016 and introduction of the Goods and Services Tax (GST) regime from July 2017 had a cascading effect on the economy by denting investments, spending, fund-raising and job creation. Growth got derailed because the shadow or parallel economy that was fuelling the GDP growth rate over the years was nipped, resulting in elimination of black or unaccounted money and prevention of tax evasion by the dodgers.

“The government has to focus more on the economy to fix the problems holding back growth, spending, investments, savings and job creation than doling out freebies,” Vishwnathan said. “Though the government may claim that the economic fundamentals are strong and over a billion people spend for their livelihood, education, healthcare and travel, unemployment, rural distress, negative sentiment, lack of capital and fear of being caught by the authorities (tax terrorism) is preventing faster growth that will create market for entrepreneurs and start-ups to consolidate and grow,” he said.

“Entrepreneurship grew well during the first term of the NDA government when hundreds of start-ups in the services sector sprung up to innovate and create a plethora of software and hardware products and services for the old and new economy,” serial entrepreneur Ravi Gururaj told IANS.

“Structural reforms, major policy initiatives, incentives and flagship programmes like ‘Start-up India’, ‘Standup India’, ‘Make in India’ and ‘Digital India’ have spawned hundreds of start-ups and are building an ecosystem for their growth and integration with the brick and mortar industry across the country,” said Gururaj, founder Chief Executive of QikPod, a startup in the e-logistics space.

The government’s recent decision to exempt the start-up community from angel tax scrutiny if requisite declarations were made has given relief to promoters and entrepreneurs, as they will be able to raise funds from angel investors and venture capitalists, without the fear of being haunted or hounded by the tax sleuths.

“Finance Minister Nirmala Sitharaman’s announcement in the Union Budget for fiscal 2019-20 on July 5 and the Central Board of Direct Taxes (CBDT) clarification through a circular last week on exempting us from tax scrutiny is a breather for our fledgling industry, as the prospects of raising angel funds will be brighter without the fear of being taxed on premium or revised value of the investment made in a start-up,” said an entrepreneur on anonymity.

“The issue of establishing identity of the investor and source of his funds will be resolved by putting in place a mechanism of e-verification. With this, funds raised by start-ups will not require scrutiny from the Income Tax Department,” said Sitharaman while presenting her maiden Budget.

Introduced in 2012 by the then United Progressive Alliance (UPA) government, angel tax was flayed by the start-ups community as some of them were served notices for non-payment of dues.

Start-ups are taking root and their growth needs to be encouraged by not subjecting them to quizzing on valuations of share premiums.

As part of the government’s commitment to the growth of start-ups, the CBDT also clarified that their pending assessments would be made by the department. Till now, start-ups were not required to justify fair market value of their shares issued to certain investors including Category-I Alternative Investment Funds (AIF).

While the manufacturing sector, including small and medium enterprises (SMEs) maintained steady growth over the past four years, however, linear, the services sector performed better as, major part of it, like software, is export-oriented and dependent on overseas markets