Budget 2023: Technology bringing the next phase of the digital revolution in India

India’s Tech industry has reflected and propelled India’s growth story over the past 3 years and continues to set the growth and innovation narrative for the foreseeable future.  While the first $100 billion took 30 years to materialize, in the next 10 years the industry has been able to double it. In FY-22, the technology industry grew at 15.5 percent (Y-o-Y) to reach $ 227 billion in revenue which is 9 percent of GDP. With exports reaching $178 billion, the sector contributes 51 percent of services export. More importantly, the industry generates 5 million direct employment with women constituting ~36 percent of the workforce.

The remarkable growth of the sector has been made possible through concerted efforts of the Government of India for decades. Apart from policies and incentives, Governments at various levels are also active consumers of the sector as they contribute by actively imbibing technology into governance.

In the last decade, India has created the largest digital public good ecosystem in the world. Through the India stack framework, products and initiatives, India has witnessed digital solutions on identity, payments, credentials, health, and education being scaled for a billion people to usher in an era of digitization to improve governance and quality of life to the last mile.  This has had a domino effect on the industry in terms of driving innovation, product development, and accelerating the startup culture.

With the building blocks of a digital society in place – digital public goods, skilled workforce, policy and regulatory ecosystem to promote entrepreneurship and ease of doing business – Indian technology sector is all set to scale greater heights in line with the ‘AatmaNirbhar Bharat – Vocal for Local and Make for Global’ vision of Government of India and in the process contribute $1 trillion to the economy.

Given the demographic composition of India and the associated challenges and opportunities, sectors viz., health, education, skilling, sports and entertainment can drive technology adoption at scale. Add to it, the Government of India’s renewed commitment to semiconductor production and hardware, and mobile manufacturing through the production-linked incentives approach, a whole new technology ecosystem is being created for the future.

Although the long-term projections, possibilities, and plans are in place, there are short: and mid-term challenges that need quick mitigation strategies. The pandemic-induced digitization demand is tapering in the revised economic realities of growth set-back and inflationary pressures. As interest rates increase and investor sentiments become dull, the access and cost to capital will change and we are witnessing the players across the field in the sector re-align and re-strategize to accommodate for that change. To that extent, Government can ease any concerns of the sector through a focused approach centered on demand creation, skilling and investments in the sector.

On the demand front, as the largest user of technology services, the Government of India is already catalyzing several initiatives for the sector. MeitY has identified health, education, e-Governance (GeM, land records, document and data exchange, urban governance, DBT, CSCs), energy, financial services, and agriculture as critical areas for making India a $ 1 trillion digital economy. A technology-focused and clearly articulated budgetary attention toward these initiatives will have an extremely positive downstream effect on the entire sector.

With workforce re-alignment topping the priority of companies of all sizes, this phase can be used to explore innovative skilling models which can not only improve the overall digital skills of the population but also provide the opportunity to re-skill the already skilled in the focus areas of the future. The Skill India Mission is particularly well positioned to orchestrate such large-scale skill transformation initiatives and also rapidly realign to cater to niche skill needs across the world.

The Start-Up India mission has had a tremendous impact on the overall psyche and the very fabric of the nation. A generation of entrepreneurs has been identified and made battle-ready to take the mantle to the next level. It may be extremely important that the idea behind the mission is now taken to every corner of the country. Investments to set up incubators and allied institutions in tier-II towns and rural areas will have long-term sustainable impact.

As India cements its position as a leader in skills in technology for the world, it will be equally important to perhaps align additional focus on product development and accelerate scientific temper for innovation and creation at (higher) education institutions. Incentivizing and supporting innovations in products and actively providing for testing grounds for these can help tilt the balance from a Digital Talent Nation to a creator economy driven through product innovation to become a Digital Product Nation.  Such a tilt will accelerate the “make for global” paradigm in the technology sector.

This combination of a robust long-term vision with short-term challenges in turn presents unique opportunities for the ecosystem to further course-correct and prepare better for the future.

Madhusudan Ekambaram, Co-Founder & CEO, KreditBee said:

“Union Budget 2023-24 is a crucial one, in supporting India’s sustainable growth. It is essential that the budget heeds the progress of the startup ecosystem. Policy measures towards developing startup clusters, which promote easy access to capital, incubator programs, and federally funded R&D activities, among others, will surely assist startups. The growth of the startup sector also depends upon clearer regulations and streamlining the process of obtaining licenses. There are certain benefits that are extended to the Inter-Ministerial Board (IMB) certified startups and not the DPIIT-recognised start-ups. The IBM certifications are difficult to get as 99% of Indian start-ups are not recognized by IMB.

Also, we hope that the government broadens the criteria for tax relief to startup employees to reduce the burden on taxation of ESOP sales. Measures towards incentivizing ESOPs with simpler and appropriate tax structures would help provide startups with significant wealth-creation opportunities while also helping them attract and retain talent.  Also, providing the requisite parity for capital gains tax treatment between unlisted and listed shares as investors in unlisted companies bear higher risk, will remove the complications with respect to classes of assets, tax rates, and period of holding and indexation benefits. It will render the investments attractive for investors.

Further, we have witnessed certain bills related to IT and data protection being considered for rendering the digital ecosystem reliable and safe. Union Budget 2023 can lay down a good foundation toward providing a clearer path to bring in policy-level changes with respect to these bills. It will greatly contribute to enabling sustainable and accelerated growth of the digital ecosystem.

The Indian financial inclusion efforts have skyrocketed, recently. The Union Budget can provide crucial support in continuing this momentum with measures like reducing or eliminating the loss of input credit, providing liquidity support, access to cheaper credit, and encouraging co-lending. Further, expanding the scope of priority sector lending, extending to the new credit customers in addition to the MFI and education domains will assist the financial inclusion imperative. Also, schemes towards improving credit access with cheaper rates will aid in this regard. These measures will certainly help NBFCs and financial institutions to extend effective credit to the underserved and unserved sections in Tier 2/ 3/ 4 regions”.

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