FM Nirmala Sitharaman interview: No funding winter, funds waiting to see more innovative startups
- ByStartupStory | February 4, 2023
According to Finance Minister Nirmala Sitharaman, there is no shortage of capital and investors are eager to see more inventive firms from India.
In an exclusive interview to Network 18 on February 3, the minister said, “I think the funding is always waiting to see more innovative startups. It’s not as if there is a funding winter or scarcity of funds.”
Although mounting macroeconomic uncertainty caused private equity and venture capital (PE/VC) financing to Indian entrepreneurs to fall to a 63-month low in January, the trend is expected to persist at least through the first half of 2023.
According to statistics given by Venture Intelligence with Moneycontrol, Indian entrepreneurs raised $630 million in January from PE/VC investors across 121 agreements, the least in terms of value since September 2017. According to the statistics, 39 agreements totaling $148.3 million were made by startups in September 2017.
“It’s more about funds looking at the opportunities available for them. The major push for startups happened in 2016 when the honourable Prime Minister announced a policy. And subsequently year after year giving concessions,” the finance minister said.
Due to the uncertainties brought on by rapid inflation, rising international interest rates, the looming recession in the West, and the European conflict that has disrupted supply chains, investors have been reluctant to support high-growth businesses.
Another curveball has been thrown at entrepreneurs by the Budget 2023, which was unveiled on February 1. Experts predict that a new tax provision might have a significant negative impact on startup investments made in the nation by international investors including SoftBank, Tiger Global, Alpha Wave, and Sequoia.
This is due to the Finance Bill 2023’s elimination of an exemption for funds obtained from overseas investors under the so-called angel tax regime. Alternative investment funds that are registered with SEBI continue to be excluded from reporting their investments.
An anti-abuse mechanism to stop money laundering was implemented in 2012 with the creation of the angel tax system. Every time a company raises money at a valuation higher than the fair market value of its shares, as evaluated by a merchant banker, it is required to pay taxes on that amount.
After hearing companies sob for years, the government finally gave up January 2019 and agreed to exclude DPIIT-registered firms from the rule. However, the small print made it clear that there was no general exclusion. It only applied to companies that had been approved by the Inter-Ministerial Board, a government agency (IMB).
The IMB accredits startups as innovative and deserving of benefits under the 1961 Income Tax Act. Less than 1% of the 84,000 startups that have so far registered with the Department for the Promotion of Industry and Internal Trade (DPIIT) are IMB accredited.
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