Boosting funding and innovation is important

Over time, many of the features connected to accelerate digitization will need further detailing. The setting up of 100 labs will need collaboration with various stakeholders and the government to fully explore the new opportunity.

However, funding for startups is a crucial aspect. With the angel tax, funding from foreign investors who are raising bulk of startup capital, for instance, Sequoia Capital, Prosus, Tiger Global, and so on, is going to be impacted, at a time when the government needs to relook how to encourage greater investment in the startup space.

Investing in startups is fraught with risks. These days, we frequently hear about the winter of investments. If funding gets squeezed, how will we kickstart innovation that’s crucial to our success as a growing nation? We can take a leaf out of the UK’s book to see how policies such as the Enterprise Investment Scheme (EIS) and Seed Enterprise Investment Scheme (SEIS) make investing into startups attractive. Under the EIS, investors may avail up to 30% income tax relief on a maximum annual investment of £300,000, or £600,000 in the case of Knowledge-Intensive Companies (KICs), should company shares be held for at least three years. SEIS offers investors the opportunity to claim 50% income tax relief on up to £100,000 per year. Investment gains are also free from Capital Gains Tax and losses attract further tax relief. Such tax incentives create an enabling environment for investors. In the US, capital gains of up to $10 million are exempted from tax nets under the UCBS. Mentorship by angels is critical to growth of startups. They help entrepreneurs gain credibility and market share. We need global investments in the country, and any promotional policies should have a longer window, of let’s say, at least 10 years, so that investors too are able to have a long-term view of their investments. We need to lay out the red carpet for both global and Indian investors, and propel an even greater startup and innovation boom that will open up employment opportunities.

Vis-a-vis capital gains, investors taking such high risks should not end up paying higher taxes. Similarly, ESOP holders should pay tax when they make money on their options. Late-stage funding pools for sectors like healthcare, biotech, agriculture, manufacturing, etc need to be unlocked from domestic pools like pension, funds, insurance companies, etc. If we don’t bring in tax incentives, such investments will flip or move towards better tax havens, and India will lose IP in the long run.

In electronics, small tinkering has been done. The finance minister has cut down basic customs duty on several components and machinery used in the manufacturing of electric vehicle batteries, mobile phones and televisions, to abet green growth and boost local manufacturing. For India to emerge as a product nation, that I have been reiterating, we need to encourage local designing and manufacturing.

We need to become atmanirbhar in making our own products, that are fully secure, repairable and upgradable, and start supplying superior quality Made in India products to the global market as well. For this we need to deepen R&D and make our engineers think more about hardware than software.

There should be no need for our local manufacturers to go to China to design their products. Based on the country’s requirement, we may create a design challenge and provide funding for that. Electronics consumption in India will balloon to $400 billion in 2025 from $100 billion at present, as per MeiTy. Our policies must be aligned with the vision to propel Made in India products.

Ajai Chowdhry is the chairman of Epic Foundation and Founder, HCL. Views expressed are personal.