Union Budget 2014-15: Impact on the startup community

Budget has become the talk of the town since its release on 10th July 2014 especially in the startup community due to the special initiatives taken to boost the entrepreneurial culture in the country. The new government realizes that finance is a major hurdle for startups in the country, hence has proposed Fund of Funds with a corpus of 10,000 crore for providing equity through venture capital funds, quasi equity, soft loans and other risk all in favor of start ups. This will boost the pace of capital flow to the concerned sector mainly through commercial banks for credit.

Much needed impetus to the MSME

Micro, Small and Medium Enterprises (MSME) have been given special focus considering their contribution of nearly 8 per cent to India’s gross domestic product (GDP), 45 per cent to the manufacturing output and 40 per cent to exports, while accounting for the second largest share of employment. The Finance Minister Arun Jaitley acknowledged redefining MSME for a higher capital ceiling and the parameters that label a company as micro, small or medium will be reconsidered. Besides a committee will be formed with representatives from the Reserve Bank of India, Ministry of Micro, Small and Medium Enterprises and Finance Ministry to examine fund flow to the Micro, Small and Medium Enterprises (MSME) sector.

 Another fund, the “Technology Development Fund” with a corpus of Rs 100 crore, has also been announced. The budget also proposed an entrepreneur friendly legal bankruptcy framework for SMEs to enable easy exit. Apart of these initiatives, a nationwide “District level Incubation and Accelerator Program” will be set up for incubation of new ideas. The program is aimed to accelerate entrepreneurship throughout the country and will prove to be a notable measure contributing to the startup community.

Boosting the sentiment of rural entrepreneurs

The finance minister also announced special initiatives to promote entrepreneurship in the rural areas. To start with, an initial sum of 100 crore was set apart for  “Start Up Village Entrepreneurship Program” for encouraging the rural youth to take up local entrepreneurship programs. The Digital India program will provide broadband connectivity in rural areas, which will help improve government transparency. The rural areas will be equipped with a new bunch of software services as Rs. 500 crores is allocated to this task. Special focus was given to schedule caste entrepreneurs by announcing an Rs 200 Crores reserve. Apart from the above initiatives, Rs. 100 crore is allocated for setting up virtual classroom for online courses and another 100 crore for the “Young Leaders Program”.

Arun Jaitley is definitely headed in the right direction, as entrepreneurship is the only solution to achieve growth and development in the country. The 10,000 crore fund allocation will be a shot in the arm for investments in the startup ecosystem. However, the impact and success of these initiatives is questionable especially because the 5000 crore fund allocated in budget of 2012-13 to help startups was a washout. There is a need to hire talented people to identify the right kind of startups and invest funds in a time-restricted manner. The success will largely depend on the implementation, which needs to be quick and transparent. While the proposition looks good, we will have to wait for the actual execution as we move along to realize the impact of Union Budget 2014-15 on the startup community.

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