Finance Minister Nirmala Sitharaman appeared with the most awaited interim union budget 2024-25 on February 1. The startup and Fintech sectors were quite optimistic about the policies and regulations undertaken by the government to uplift the financial sector of the economy.
Fintech is the most flourishing and fastest-growing ecosystem in the world in fields such as banking infrastructure, digital payments, and equity investor participation. However, the lending sector has lagged compared to the increased demand for funding by the startup ecosystem. In such cases, fintech leaders were looking for announcements and assistance policies in the upcoming budget.
There were some demands for startups and fintech from the expected 2024 budget.
- At the top of the list was the demand for more simple and effective regulatory policies with no or meager compliance burden. Simplifying regulatory procedures allows startups to focus on the growth of the business rather than steering complex paperwork.
- On the second of the list was the demand for easy tax reforms, such as tax incentives and exemptions that can motivate entrepreneurs to take risks and pay taxes on time.
- Demand for ease in GST (goods and service tax) regulation was always crucial for the smooth functioning of startup businesses.
- Clarifying the angel tax issue and providing clear guidelines was also one of the demands for the sustainability of business and building confidence in investors.Â
- Last but not least, there was a demand for skill enhancement and talent acquisition, inculcating essential skills and education programs for the workforce that can contribute to the overall growth of the economy.
Simultaneously, there were more expectations for several new trends to increase the landscape of the startup ecosystem, such as
- Rise of Embedded Finance
- Sustainability and Impact Investing
- Decentralized Finance (DeFi) Adoption
- Government Initiatives for Digital Transformation
In order to evolve SME lending outlook, alternative financing companies play vital roles. The name to highlight is the growing and evolving financing company is Revenue-based financing. Demand to strengthen the tech infrastructure and to build a strong collaboration of these companies also prevailed. To meet the demand, revenue-based financing companies can be helpful. Under RBF, companies raise funds in return for a certain share in their gross revenue. They generally fulfills business short-term capital requirements, for example working capital. Under this, there is no requirement for collateral against the funds raised. In this way, RBF plays a crucial role for startup to increase their cash flow by taking multiple rounds.
Expectations vs reality-
The interim budget focuses majorly on Startup India and the Startup Credit Guarantee schemes. The best statement from the Interim Budget that without delay pertains to the startup environment became the extension of the tax vacation to startups until March 31, 2025. Last year, this was extended from March 2023 to March 2024.
Eligible startups (those who meet particular standards set out with the aid of using the DPIIT) can avail of a tax excursion for 3 out of 7 years from their date of incorporation, furnished that The business’ annual turnover no longer exceeds INR 25 Cr in any of those monetary years.
Besides this, the government is planning to boost new business, innovation, and research by establishing a 1 Lakh Cr corpus for 50-year interest-free loans.
The interim budget 2024 is key to boosting and shaping the startup ecosystem and SME lending platforms in India that really looks for financing and thus, the role of RBF (Revenue Based Financing) is appreciated and recommended.