Budget 2022: Decoding the essentials for e-commerce, start-ups

The Economic Survey indicated that "India has 3rd largest start-up ecosystem after US and China". The Survey also indicated that a record 44 Indian start-ups bagged unicorn status in 2021, taking the total count of unicorns in the country to 83, and that India had emerged as the third highest country in number of unicorns after the US and China. Overall macroeconomic stability indicators also suggested that the economy was well placed to take on challenges of 2022-23.

India's response during the pandemic years gone by was to better manage supply-side reforms (as against a singular reliance on demand management), and included areas such as deregulation of numerous sectors, simplification of processes, removal of issues around retrospective tax, production-linked incentives (PLI), etc.

Start-ups were eagerly awaiting policy announcements in Budget 2022 around enabling a direct offshore listing process (to enable wider and faster access to public capital) and easing of tax consequences for all start-ups in respect of ESOP taxability (via shifting tax incidence to liquidity event) and in respect of aligning holding period for unlisted stock to that with listed stock. However, these were unfortunately left unaddressed. 

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Given that start-ups are also going through a significant phase of consolidation and acquisitions, one would also have wanted to see some provisions enabling tax-efficient M&A activity (including deferral mechanism on share-swap events) which also seems to have been a miss in the Budget announcements.

On the positive side, however, announcements at a policy level around agri-tech (including Kisan drones), infrastructure (which should have a ripple effect on transport and logistics start-ups), health-tech, education, fintech, etc., would be welcomed by industry. Similarly, extension of the timeline by a year for tax benefits applicable to DPIIT-registered start-ups is also a step in the right direction. The FM also indicated to be setting-up a specific taskforce in the AVGC (animation, visual effects, gaming and comics) sector to employ youth in this sector and for building domestic capacity for serving local markets and the global demand. Similarly, announcements around issuance of digital rupee in FY 2022-23 are a positive step.

The FM also announced setting-up of an expert taskforce in the PE/VC space, and while the consultative approach is indeed a welcome move, what would be essential here would be quicker resolution to address all stakeholder concerns so that India continues on its growth-path of "Make in India", "Vocal for Local" and for "Atmanirbhar Bharat".

(The author is Partner - Strategy & Transactions and National Leader for the E-commerce, Consumer Internet & Start-ups at EY)

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