With the BJP not securing full majority as anticipated by the exit polls, the start-up and MSME world seem to be worried about political stability.
Talking to Business Today on the condition of anonymity, a Delhi-based MSME owner, who a manufacturer of candles, says in the past few years, the MSMEs which were sidelined, saw a major push from the government. “With all vocal for local and make in India movements, the homegrown businesses flourished but now things seem dicey as the lack of full majority of the government may resist them to take bold moves,” he added.
While MSMEs still face the dearth of working capital and policies that could solve their credit gap issue which amounts to $530 billion dollar as per an EY report, the enterprise owner says that the MSME ecosystem has been expecting relief in these areas from the upcoming government.
The BJP, which had anticipated a landslide victory with an ambitious goal of '400 paar', will now come to power in alliance with parties like TDP and JD(U) as part of the NDA.
Start-ups and venture capitalists acknowledge that the Modi-led BJP government has significantly bolstered the start-up ecosystem over the past decade, propelling India to become the third-largest startup ecosystem globally, with over lakh start-ups. The emerging VC landscape has also seen a rise in Indian VC firms. However, the future of this thriving ecosystem remains uncertain.
“A full majority for Modi 3.0 was crucial for maintaining start-up-friendly policies. His leadership is essential for initiatives like the National Deep Tech Policy to mature and for fintech founders to operate in a clearer regulatory environment, fostering innovation and growth,” says Ankit Kedia, Founder and Lead Investor at Capital-A.
The fewer-than-expected seats are likely to impact the pace and depth of difficult economic reforms.
“Overall, the results are a hit to the burgeoning expectations, likely in the short run, as things pan out,” asserts Jyoti Prakash, Managing Director at Resurgent India, one of the leading investment banks and SEBI-registered Category I merchant bank.
Prakash adds that with an alliance government instead of a thumping majority, the focus will likely shift to basic welfare schemes and moderate policies rather than bold economic reforms. This could make the start-up ecosystem less encouraging, with a greater emphasis on rural and semi-urban population.
However, for the MSME sector, which is considered as the growth engine of the Indian economy, Prakash says that there will be more emphasis on the sector as a source of generating employment and redistribution of resources. The incentives are likely to flow to MSME as a direct beneficiary rather than as a part of large-scale initiatives to prompt industrial growth.
“Winning by a narrow margin isn't as significant in the start-up ecosystem, as it is in other areas,” says Shubham Jhuria, CFO and Partner at Aeravati Ventures while he emphasises that what truly matters is the ongoing development of positive policies and improved programs that benefit the entire ecosystem, regardless of which government is in power.
Arjun Poojari, Co-founder and CEO of Cashinvoice, a digital supply chain finance platform, highlights how policies and budgetary reforms in BJP’s previous tenure enabled the start-up ecosystem but mentions that now initiatives around policies like encouraging start-up innovation, offering tax incentives, and creating dedicated funds to support early-stage ventures are needed.
“Championing MSMEs and supporting the growing fintech ecosystem will unlock immense potential. By facilitating unsecured, affordable, and timely financing for millions of unbanked MSMEs, we can not only improve their access to capital but also empower countless self-employed individuals, ultimately raising the per capita income of a large portion of the population,” he added.
Kunal Jhunjhunwala, founder of Airpay Payment Services says that India is poised to position itself as a major economic powerhouse.
But, as Modi’s third term as the Prime Minister is yet to be unveiled along with NDA alliance, start-ups and MSMEs seem to be restless on what lied ahead in terms of policy changes.
According to Jyoti Bhandari, founder and CEO of Lovak Capital, the key would be consistency and stability on the table. “Investors often react based on expectations for economic reforms, infrastructure development, and stability. A decisive win by a party with pro-business policies can boost investor confidence, leading to positive movements in the stock market and potentially stimulating economic growth,” he added.
But as the stock market crashed into negative territory on Tuesday, Bhandari says that uncertainty or short-term volatility may prevail until the market adjusts to the new political landscape. Nonetheless, these times could present opportunities for long-term investors to buy their favorite stocks and sectors at reasonable prices, he added.
A lot of expectations prevail in the business ecosystem. From reforming labour laws, easing legalities, access to funding and resources, to tax incentivising, Ravinder Goyal, Co-founder of Erekrut, an HR tech start-up says that the new government should priorities creating a supportive ecosystem for start-ups.