TiE Silicon Valley veterans believe India’s new budget will provide a boost to start-ups in the country though a lot is still needed to be done to achieve the goal of a $5 trillion economy.
Sharing the expert views and thoughts TiE Silicon Valley President B J Arun told indica that the 2020 budget appears quite friendly to foreign investors with the biggest incentive being the elimination of the highly unpopular Direct Dividend Tax or DDT. This removes the requirement of deducting the effective 20.35% at source and while multinational shareholders are still liable to pay tax, they can claim credit in their respective countries. The limit for Foreign Portfolio Investors in Corporate Bonds has been increased from 9% to 15%, and this too should also boost investor confidence and hopefully lead to further foreign investments.
When asked on the government showing positive approach to boost startups he said, “While the proposal to ease the burden on employees ESOPs by deferring the tax by 5 years or whenever they sell the stock is very welcome, the fine print seems to indicate that this break is limited to just a couple of hundred companies based on whether they qualify under section 80-IAC or not.”
“ I would highly recommend that the GoI consider extending this tax deferral… by extending the benefit to all 7,000+ companies that are registered under the DPIIT (Department for Promotion of Industry and Internal Trade),” Arun said.
However when asked on the Prime Minister goal to make India a $5 trillion economy, he sounded skeptical said, “The dream of making India a $5 trillion economy in 2024 remains a lofty one, and I for one did not see any dramatic changes in the current budget that will accelerate the economy towards this goal.”
Venktesh Shukla, General Partner at Monta Vista Capital and former President of TiE Silicon Valley and Chair of TiE Global and Vish Mishra, General Partner and Venture Director at Clearstone Venture Partners and former TiE president appreciated the Union Budget of India for the fiscal year of 2020-21, saying that the Indian Government has not panicked in a time of crisis and handled the situation well.
“There are a few positives in the budget for investors in general including foreign investors. First, the government has not panicked and held its nerve in terms of keeping expenditure within limits. There were all kinds of expert advice before the budget that the government has to open the expenditure spigot and that this is not the time to worry about exceeding deficit targets. The budget has struck the right balance with only a modest increase in deficit targets,” Shukla told indica.
Commenting on foreign investors and what the Budget 2020 holds for FDI, he added, “The government seems confident of generating significant new resources from foreign investors including sovereign funds as well as from disinvestment in public sector enterprises such as LIC. In the long run, this is the wiser course to pursue for the economy.”
He further added that though the budget for infrastructure has been doubled, more reforms for large-scale manufacturing are still needed to achieve the Modi government’s dream to make India a $5 trillion economy by 2024.
“The focus on building infrastructure is one critical element of realizing that dream. The budget has doubled down on building roads, and other infrastructure. I was hoping that the government will also signal its intent of reforming land and labor laws. We will have to wait for those reforms critical to large scale manufacturing to move to India”, said Shukla.
Mishra, a venture capitalist, told indica, “[The Indian] budget is taking modest steps to boost growth to 6.5% compared to last year’s growth of less than 5% but closer to the 2018 rate of 6.8%. It has elements of investments in infrastructure such as roads and airports and income tax cuts to stimulate domestic consumption.”
“I like the lofty goal of boosting the economy to $5T by 2024. However, it can only be driven by a massive infusion of capital into the Indian economy which must come from FDIs. This is possible as India is getting better in terms of ease of doing business and the perceived stability of the government under the Modi administration. Modi has been doing well in marketing India to foreign investors, especially the U.S. and I hope this continues,” he added.
Speaking about the relief on Employee Stock Option Plan (ESOP), Shukla added that though it would have been better to abolish the Angel tax altogether, the current initiative to provide tax-relief will also open many doors for new start-ups.
“The ESOP relief is another step forward for the start-up ecosystem in India. It would have been better if the government had abolished the Angel tax altogether but the relief provided earlier addressed this issue to a large extent. Thankfully, the progress is steadily in one direction only— implementing the best practices from all over the world for creating a favorable environment for start-ups”, he said.
Mishra continued, “Incremental improvements to ease the lives of startups is a welcome step which could attract even more funding than the all-time high of $14B in 2019.”