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IDGVI News: Media Coverage 2014

Budget 2014: Boost for investment - A few positives for PE/VC industry, says Sudhir Sethi

Economic Times – July 12, 2014

The big-data analytics firm will expand its offerings, hire senior managers and ramp up product development

by Sudhir Sethi, Founder Chairman and MD, IDG Ventures India

The private equity/venture industry has in the recent past faced a substantial policy vacuum as well as retrograde steps, specially on taxation, leading to difficulties in fundraising as well as loss of confidence in the country from investors due to unpredictable or lack of enabling policies. The new government has at the outset improved sentiment about investing in India significantly.

The PE/VC industry's expectation on medium to long-term policy statements was hence high from the budget. The budget announcements related to the PE/VC industry were more than in any budget in the recent past. Material budget announcements, however, were missing and a few new ones introduced which could have a negative impact.

Sector-specific Announcements

The announcement on FDI in defence and insurance up to 49% opens up opportunities for large PE players to invest in India in two strong scalable sectors. A welcome move. In China, 10% of total retail sales are e-commerce enabled; significantly higher than India. Not enabling this would hamper capital inflows into e-commerce as well as growth of jobs in India. An announcement enabling FDI in e-commerce was clearly expected.

Budget Allocation for Start-ups

Setting up a Rs 10,000- crore fund for equity and soft loans can be a catalyst for more rupee funds to start in India. It is critical here that the government does not take on the mantle of investing this corpus directly into companies. Like in China, where the government has acted as an LP successfully, this capital should be managed by fund managers selected in a transparent manner. A welcome move indeed. An allocation of Rs 500 crore for software (product) start-ups was another welcome announcement. The manner of allocation, ideally through fund managers, can be more effective; hence execution is key.

Taxation

Directional statement for GST to be introduced by year-end is a welcome announcement. It remains to be seen if this really happens. I was hoping the issue of retrospective taxes would be addressed. However, the government to set up a high-level committee to interact with industry to bring changes in tax laws is a welcome announcement. International PE/VC funds investing in India are exempt from tax due to DTAA treaties. Rupee funds investing in India, however, attract taxation. Rupee funds investing in private companies must be encouraged by bringing taxation in unlisted companies on a par with dollar funds or listed entities in India. The budgets announcement of long-term capital gains in a private (unlisted) company now after three years is disappointing.