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Budget 2023: Retail-tech start-ups expect faster, easier access to capital

In the upcoming Union Budget 2023, retail tech founders are rooting for a 30 per cent tax relief incentive to expand the investment pool

Budget 2023: Retail-tech start-ups expect faster, easier access to capital
POSTED ON January 30, 2023 10:41 PM

2022 was a tumultuous year for start-ups due to global macroeconomic instability, negative market sentiment and fears of an anticipated recession. Although some companies managed to survive and even thrive, despite these headwinds, the industry needs some supportive measures from the government to boost growth and ensure the recovery of affected organisations.

Funding was a major challenge for start-ups, though companies with a robust business model and strong unit economics could do this and fuel their business expansion plans. In the upcoming Union Budget 2023, these start-ups expect a tax relief incentive of up to 30 per cent to expand the angel investor pool to propel early-stage firms.

Infusion Of Dry Powder

Retail contributes to over 10 per cent of the national GDP. In the last few years, several retail start-ups in the country have not been trying to boost consumption but also disrupt the market with technological innovations.

Chirag Taneja, cofounder and CEO of Gokwik, believes that in such a scenario, the sector is well-founded in expecting the government to announce some Fund of Funds to keep the investment momentum alive since the funding winter is likely to continue for some more time.

Chirag Taneja, cofounder and CEO of Gokwik
Chirag Taneja, cofounder and CEO of Gokwik

Moreover, FDI is expected to soften due to an ongoing economic slump and rising inflation. Talking about the challenges faced by start-up founders, Nitin Chhabra, CEO of Ace Turtle, said that getting the operating model right is among the toughest, given that this is a high-growth industry.

"But it is not a positive cash-flow business as one needs to keep ploughing profits back to grow the business. Getting the operating model right is hence critical for the success of any start-up," he added. 

Retail is going through a revolutionary phase accelerated by changing consumption patterns and digital adoption, opening opportunities for new players to enter the segment with innovative products and disruptive business models. While marketplaces were the quintessential platforms for selling online goods, other channels such as D2C also started gaining traction, especially driven by tier 2 and 3 shoppers in India. 

While the pandemic was a catalyst in this growth spurt, the scenario quickly changed in 2022. Retail start-ups, especially in the early stage, are grappling with maintaining their working capital as a runway for sustainability and growth in the face of the limited availability of dry powder.

Moreover, the growing competition is compounding this problem. Taneja noted that the sector had witnessed exponential growth in terms of players with similar offerings and low brand trust. "This high competition in the digital space is driving up customer acquisition costs which act as an added pressure in the current economic conditions. The questions most of these start-ups are trying to answer is how they can improve their brand's staying power and retention to drive their unit economics of business, rather than relying only on growth," he added. 

Taxing The Talent

Last year's Budget had some initiatives, like Amrut Kaal, to spur consumer activity, which led to a spike in e-commerce-led consumption and rationalisation of import duties as part of the 'Make in India' initiative. However, fundraising remained a challenge for most, though those with a robust business model and strong unit economics could raise funds to expand their business. 

With news about layoffs across the start-up ecosystem grabbing headlines, the issue of the availability of skilled talent, especially in engineering and product management, still needs to be solved. Kalra feels that taxing ESOPs at the point of sale can be a game-changer for many emerging start-ups. 

Nicky Sidhwani, VP of Coutloot
Nicky Sidhwani, VP of Coutloot

Likewise, rolling out a single window for all relevant registrations can help businesses quickly initiate operations without delays. Promoting the usage of accrued GST credit as collateral for the start-ups' initial period of operations would be another significant move to support companies, especially during these times of uncertainty.

Prerna Kalra, co-founder and CEO of Daalchini Technologies noted that promoting the usage of accrued GST credit as collateral for the startups’ initial period of operations would be another significant move to support companies, especially during these times of uncertainty.

Adding to this, Nicky Sidhwani, VP of Coutloot, a social commerce app, felt that the mandatory GST registration for selling your products online often creates a barrier for small store owners to participate on ecommerce platforms and restricts their sales. "Similarly, the cost of goods movement needs to be brought down. Currently, it's higher in India compared to other countries," he added. 

While most retail tech start-up founders expect a moderate policy change in this Budget, considering that an imminent recession could impact growth and consumption in developing countries, Taneja hopes the government will announce some growth-oriented measures and tax benefits to driving overall consumption. His peers also expect the Budget will expedite the National Retail Policy to boost the growth of the sector struggling to bounce back post Covid, along with restructuring GST formalities to encourage consumption.  

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