India startups raise over $11 billion in first quarter

Karnataka ranked as the best performer for launching an engineering research and development startup.

By H. P. Ranina

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Reuters file photo
Reuters file photo

Published: Sat 16 Jul 2022, 5:07 PM

Last updated: Sat 16 Jul 2022, 5:10 PM

Question: My friends and I are proposing to pool our savings and invest in an engineering startup. We are not yet decided about the location. Your advice in this matter will be helpful.

A study made by a government agency has revealed that Indian startups have raised $42 billion in funding during 2021 which is an all-time high. This momentum has continued in 2022 with startups raising over $11 billion in the first quarter of 2022.

Karnataka was ranked as the best performer for launching an engineering research and development startup. This is on account of the State government’s policy to attract investments and creating a regulatory ecosystem to enable new enterprises to avail exemption from the State and Municipal laws. The other two States which have a high score are Andhra Pradesh and Bihar.

The study made by the government agency factors in areas like institutional support to startups, incubation support, access to markets, and funding of investments. Three more areas are being added to this framework. These are capacity building of enablers, membership support and fostering innovation and entrepreneurship.

In some States of India, the consumer is facing shortage of petrol and diesel which has resulted in retailers jacking up prices. The government seems to be oblivious of the difficulties faced by consumers. Are any steps being taken to counter this trend?

Private refiners in India have been exporting larger quantities of petrol, diesel and jet fuel in order to take advantage of elevated global prices, thereby making windfall profits. The government has therefore imposed additional duty on domestic crude in order to mop up a part of the windfall gains. Petrol and jet fuel exports are taxed by levying a special additional excise duty of Rs6 per litre.

The levy on diesel exports is Rs13 a litre. Further, a special additional excise duty of Rs23,250 per tonne has been imposed on producers who pump more than 2 million tonnes of crude in a year. The finance minister has justified this move to prevent export of petrol and diesel which is needed by domestic consumers after the opening up of the Indian economy. The genesis of the fuel export tax lies in the shortages of fuel which has been felt in certain States. While Government retailers continue to sell fuel below cost, private players ramped up exports and curtailed domestic sales. The government had to import petrol and diesel to bridge the gap.

Thus the tax has been imposed to curtail exports of these essential items. This tax is likely to garner for the government Rs.670 billion. Government officials have indicated that this tax will be withdrawn only when global prices of crude oil fall from the present level by $40 dollars per barrel or more.

The GST regime in India has completed five years. Is there any move to reduce the rates of this tax?

Discussions have been going on in the GST Council for bringing down the three slabs of 5 per cent, 12 per cent and 18 per cent and introducing just two slabs. This is proposed as part of the rate rationalisation exercise. GST collections have sky rocketed in recent months due to increasing tax compliance measures being introduced.

Currently there is no proposal to bring petroleum products under the GST regime though this has been the consistent demand of industry. However, all stake holders have agreed that the top GST slab rate of 28 per cent should be continued for luxury and sin goods. This is justifiable on the ground that the high rate of 28 per cent is appropriate in a developing economy which has substantial income disparities.

H. P. Ranina is a practicing lawyer, specialising in tax and exchange management laws of India.

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