New Delhi: As India grapples with over 16,000 government-recognized ventures and the challenges posed by the startup slowdown, Finance Minister Nirmala Sitharaman is under scrutiny for measures that could provide relief to the country's burgeoning entrepreneurs. Potential actions, such as reducing the angel tax and extending the deadline for income tax holiday eligibility, may offer significant support amid a difficult economic landscape.
The funding downturn has resulted in a sharp decline, with 2023 witnessing only $7 billion in funding compared to $25 billion in 2022, marking a 73% year-on-year decrease for startups. This figure represents the lowest funding level in the last five years, as per official data. In 2023, only two startups, Incred and Zepto, achieved unicorn status.
Siddarth Pai, Founding Partner at 3One4 Capital, highlights the concerning trend of startups relocating abroad for tax benefits and funding security. Addressing this issue is crucial, as venture capitalists face higher taxes for greater risks compared to those investing in publicly listed companies.
While the funding winter has posed challenges, it has prompted startups to shift from the earlier mindset of rapid growth to a more reflective and rebuilding approach in 2023, according to Pai. The funding crunch has made companies more agile and sustainable as they enter 2024, preparing to tap into public funding through listings.
Angel investor Lloyd Matthias notes that the funding dry-up has eliminated the reckless growth-focused approach of startups. He emphasizes the need to decrease angel tax and extend the income tax holiday registration deadline, preferably until July, when the full Budget is introduced post Lok Sabha polls.
Looking ahead, the finance minister may consider introducing initiatives to support startups in the fields of artificial intelligence and agriculture, aligning with emerging opportunities.
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