Union Budget 2023: Blacksoil's Recommendations And Policy Expectations
The Union Budget of 2022 continued the robust trend of supporting the startup industry in India. The budget was also touted as the ‘Budget For Digital India’ thanks to the slew of proposals and announcements opening opportunities for startups in India.
For 2023, BlackSoil sees potential in sectors that have seen a significant bounce back post-COVID including OTAs (online travel agencies), travel and leisure and the restaurant industry. They continue to remain bullish on healthtech as well. In addition to this, it is pre-empted that demand will soon resume to pre-COVID levels, and such businesses will continue to make great strides by addressing pent up demand. The platform has taken significant exposures across new age businesses including EV, Quick Commerce, Hospitality, Online Travel Aggregator and many more, whilst continuing to support conventional businesses operating in sectors such as SaaS, Healthcare, FinServ etc.
Below is a synopsis from Blacksoil on what are the key demands for the upcoming union budget.
Electric Vehicles and Mobility Sector (EV)
Battery Swapping Policy is key to bring about ‘true mobility’ without causing range anxiety and ease on the requirement of immediate battery charging infrastructure.
The battery swapping policy, which was committed in last year's budget, is yet to be implemented. NITI Aayog has consulted stakeholders, but the Society of Manufacturers of Electric Vehicles (SMEV) believes that the final policy is essential for accelerating this segment.
Important for extension of the FAME-II scheme to achieve overall targeted reach.
The expectation is for the government to adopt a long-term outlook and extend the validity of the FAME-II scheme beyond 2024 since we are yet to meet the penetration the subsidy was supposed to catalyse. The new FAME-II scheme should be linked to e-mobility conversion rather than being time-based.
GST Reduction and charging a uniform rate to boost production, manufacturing, leading to reduction in overall costs and acceptance by consumers.
One of the ways which could urgently address the roadblocks the industry is facing is levying a uniform GST rate, for both the vehicles and the components that go into its manufacturing. While 5 per cent GST is levied for the vehicle; for spare parts, there is no clarity, and the industry ends up paying 28 per cent (except for batteries). The government should also consider a reduction in GST on swap batteries to lower the cost of EV ownership among fleet operators, last-mile delivery companies, and the last-mile connectivity sector.
Support for MSMEs who are engaged in the development of key components for the development of EVs
The PLI scheme should be extended to MSMEs that manufacture/assemble battery packs, charging and battery-swapping equipment. More subsidies are required to support EV financing and must be included as part of priority sector lending (PSL). NBFCs should be incentivised to fund EVs, which will enable growth to take place.
Healthcare Sector
It is essential for the Government to ramp-up preventive healthcare infrastructure, which is currently receiving only about 20 per cent of overall government healthcare spend, including the crucial digitisation and ready availability of medical records.
With the government doubling down on the digitisation of healthcare infrastructure via their initiative of Ayushman Bharat, to create a system of personal health records, based on international standards, that will be easily accessible to individuals and healthcare professionals and services providers.
Import Easing and Make-In-India Push of medical devices is a key need in boosting the reach of medical aid to all across the country.
India is around 80-85 per cent import dependent for medical devices, with its import spend increasing by 41 per cent from FY21 to FY22. Trade margin rationalisation as well as an increase in basic custom duty will reduce dependence on medical device imports from countries like China and the US and will aid domestic industry players.
Logistics
Implementation of National Logistics Policy to bring down high logistics Costs in India
In September 2022, the government of India launched The National Logistics Policy which aimed at reducing logistics costs from around 14 per cent of GDP 8 per cent of GDP, at par with developed countries, by introducing a Unified Logistics Interface Platform, Digital Integration System, and E-Logs. The government of India should set up a cross-ministerial group to oversee the implementation of The National Logistics Policy. Government should allocate the budget and define targets for eight action areas to augment the efficacy and reduce the costs associated with Logistics.
Expedite Logistics Infrastructure Development for increased efficiency and reduced logistics cost and policy intervention for greening and sustainability of the industry
In order to decongest roads, enhance logistics efficiency and reduce logistics costs, the government should focus on the fast-tracking implementation of multimodal supply chain networks. The government should consider setting up large-scale warehouses through public-private participation. According to estimates 84g of carbon dioxide gets produced per ton/km in road transportation. This number is 28g by railways and waterways respectively. 40 per cent of India's food grain production goes to waste due to a lack of storage facilities.
Deeptech IOT, SaaS – Focus on building a digital India
Removal of FDI ceiling in domestic defence companies, enabling more participants to enter the space in terms of development and investment.
FDI guidelines which currently limits foreign shareholding in a domestic defence company to 49 per cent restricts capital inflow from prominent overseas investors. Under Budget 2023, extension / eradication of this shareholding ceiling, will make it easier for the companies to raise capital from foreign institutional investors, which in turn will help propel their growth.
Production Linked Incentive Scheme (PLI) push from the Government is essential.
Given that Indian drone ecosystem comprises of around 200 startups, an increase in the PLI scheme outlay from the current Rs 120 crore will help to boost the manufacturing and components ecosystem.
Reduction in GST Rates for drone-technology development will help in not only hardware but software development.
To promote indigenous IP development for drones, a reduction in the GST rate from current 18 per cent will act as a shot in the arm for the industry as software is a key functionality component and promoting indigenous development of the same will align with the Make-in-India initiative
OTA and Travel and Tourism
Interim Re-positioning of the OTA Sector to enable ready access to capital as well as giving a boost to cash-strapped businesses operating in the sector.
The travel and tourism sector has seen a significant rebound during FY 23 however, it is imperative that businesses in this space are able to capitalise on this revitalised demand – which will require access to capital which is significantly more difficult given the balance positions on account of the preceding two FY’s.
Other Key Initiatives – Investment and taxation
There should be a single window for all relevant registrations like company incorporation, shop establishment, goods and services tax (GST) registration, MSME (micro, small and medium enterprises) certificate etc. Revised taxation slabs that bring better parity in capital gains between listed and unlisted investments. "Opening of doors" for insurance companies, EPFOs, and other welfare funds to invest in alternate investment funds.
