Budget 2016: Impact on alternative fund industry.

In the backdrop of slow global growth, turbulent financial markets and volatile exchange rates,one may say that expectations from the Union Budget 2016 were overall low. Amid a need to maintain fiscal discipline and with limited avenues to mobilise additional resources (except by increasing taxes), aspects like no substantial increase in service tax, no change in the structure of taxation for listed securities and no change in extension in holding period for an asset to qualify as longterm capital asset, all are signs of relief and indicators of a stable regime.

Having said that, the alternative fund industry, being the source of risk capital for Indian
entrepreneurs, had significant expectations from the Budget. They were hoping that the
government will significantly accept the recommendations of the Alternative Investment Policy Advisory Committee (AIPAC) formed by the Securities and Exchange Board of India (SEBI) under the chairmanship of NR Narayana Murthy. In fact, the report had a chapter dedicated to tax reforms required for the alternative funds industry.

While many of those recommendations could have been accepted, the Budget proposals fell
short of expectations in this regard. However, some proposals relevant to the alternative fund industry made their way and are summarized below: Withholding tax on distributions by Alternative Investment Funds (AIF): It is proposed that distribution of income by AIFs to nonresident investors shall not be subject to 10 per cent withholding tax provided such nonresident investor is eligible for tax treaty benefits.

This proposal will be warmly welcomed by the AIFs, specifically, the fund managers based in India, who were looking to raise capital from offshore investors, to capitalise on the recent FDI liberalisation allowing 100 per cent FDI in AIFs under the automatic route. However, it would have helped if the government had taken distributions to exempt resident investors or distributions of exempt income to residents out of 10 per cent tax withholding.

Applicable longterm capital gains tax rate to foreign funds: The issue of applicability of
reduced rate of 10 per cent tax on longterm capital gains arising on transfer of unlisted
securities for nonresidents is proposed to be resolved. It is proposed that such rate shall be
available on longterm capital gains derived on transfer of unlisted securities or shares of
company in which public is not substantially interested. While taxation of gains arising to most of the foreign funds would be protected under the applicable tax treaty, this amendment should help foreign funds in tax indemnity related discussions on exits.

Reduction in holding period: In another welcome move, the finance minister said that the
holding period of securities of unlisted companies to be treated as longterm capital asset is
proposed to be reduced from three to two years. However, enabling provisions to enact such amendment in the law seems to have been missed out.

Safe harbor rules largely unchanged: Allowing onshore asset management of offshore pool of capital has been a key demand of the alternative fund industry for more than three years. If enacted, the amendment will help the government not only in restricting export of intellectual capital but also raise additional revenues by way of income tax on fund management fees.

While two small amendments have been made (explained below), a lot was expected about
investment diversification, investor diversification and provisions relating to arm’s length
management fees. One hopes that these will be dealt through a separate notification for which the law provides for – though this needs some sense of urgency.

(i) Safe harbor rules were applicable to an eligible investment fund resident of a country /
specified association, with which India has entered into a double taxation avoidance agreement.

This section is proposed to be amended to also include a country which may be notified by the government. Here also instead of a country to be notified, what the industry expects is that the fund could be set up or established or incorporated in the countries with which India has a tax treaty.

(ii) Currently, an eligible investment fund is not permitted to carry on or control and manage,
directly or indirectly, any business in India or from India. This condition is now proposed to be restricted to controlling any business in India and not from India.
Place of Effective Management (POEM) effective from April 1, 2016: In order to provide clarity for implementation of the POEMbased residency test and also to address concerns of the stakeholders, it is proposed to defer the applicability of such rule by a year. However, it is expected that the government will soon finalise the detailed guidelines relating to determination of POEM for effective implementation.

MAT on foreign companies: With a view to provide certainty in taxation of foreign companies, it is proposed that MAT provisions shall not apply to foreign companies if it is from a treaty country and does not have a permanent establishment in India or it is not from a treaty country and is not required to register under the Companies Act.

New asset classes: Probably the last hurdle from tax standpoint for REIT/ InvIT, is proposed to be cleared in this Budget. Once enacted, dividend received by an REIT / InvIT from wholly owned special purpose vehicles (SPV) shall not be taxable in the hands of the trust nor will it be subject to dividend distribution tax (DDT) in the hands of the SPV.

Similarly, a new taxation regime for securitisation trusts and its investors has been provided.
Amongst others, tax passthrough status has been provided to income of securitisation trust
and income from securitisation trust would be taxable in the hands of investors. Further, 100
per cent FDI is proposed to be allowed under the automatic route in asset reconstruction
companies. For foreign portfolio investors regulated by SEBI, it is proposed that they shall also be allowed to invest 100 per cent of security receipts issued by the securitisation trust. Both provisions should help fund managers focusing on these asset classes in short to medium term.

Other important amendments include introduction of the Organization for Economic
Cooperation and Development's (OECD) recommendation on certain action plan of Base Erosion and Profit Shifting (BEPS) project, tax incentives for units located in International Financial Services Center, systematic phase out of tax incentives currently available under the tax laws and replacing it with tax incentive for startups and entities generating employment.

The industry still craves for clarity around characterisation of gains of an AIF to be treated as ‘capital gain’, extension of tax passthrough to all categories of AIFs and allowing retirement and pension funds invest in AIFs – though the circular issued yesterday should address one of the concerns in this regard (regarding characterization).

One would hope the government issues the necessary guidance to provide certainty on the
above issues, as these are a must for better development of the alternative fund industry.
Vikram Bohra is partner and Devang Ambavi is associate director manager, Financial Services Tax and Regulatory Services, PwC India.

Will a new credit rating system for infrastructure projects help?

CARE expects the proposed system could help under-development projects with a rating agency stepping in at the pre-bid level of infrastructure projects

Mumbai: Finance minister Arun Jaitley on Monday announced the formation of a new credit rating system for infrastructure projects in the country for better credit enhancement.

A new credit rating system for infrastructure projects will give “emphasis to various in-built credit enhancement structures… instead of relying upon a standard perception of risk which often result in mispriced loans,” the budget statement said.

The intent seems to be to help infrastructure projects access credit from multiple sources and at better rates. However, it is unclear how the new system would be different from the existing credit rating scale put in place by credit rating agencies. It is also unclear whether the proposed rating system would be for operational projects or under-development projects or both.

“I have not seen the details, but if I draw a comparison with the banking rating system, how will it be different? Has the existing banking rating system helped?” asked a former government official, who has been closely associated to road project financing, but did not want to be named.

There are no clear answers as of now.

D.R. Dogra, managing director and chief executive officer of Credit Analysis and Research Ltd (CARE), expects the proposed credit rating system could help under-development projects with a rating agency stepping in at the pre-bid level of infrastructure projects. “A rating agency can help identify issues which lead to a lower rating at the pre-bid stage, which can then be addressed before private bids are invited,” said Dogra, adding that he is not aware of the details of the proposed credit rating system as it has not been discussed with rating agencies yet.

Not all are of the same view though.

A top official from another rating agency points out the new announcement speaks about credit enhancement. “Credit enhancement measures are taken only once the infrastructure projects are operational. This is the point where a refinancing can happen and bank credit can be replaced with bonds. A better rating makes the bonds market accessible in a better way,” he said. He refused to be identified as the agency is not aware what the actual fine print of the credit rating system would be.

Infrastructure consultant Vinayak Chatterjee, chairman for Feedback Infra Pvt. Ltd, is positive the new credit rating system would help the sector as the traditional rating methods do not fully take into account the risk in an infrastructure project which changes at different stages of the project life-cycle.

Even as the industry waits for details, a former rating agency official, who did not want to be named, said, “Need more clarity (on the details of the system), but mostly it would be inconsequential.”

FM Jaitley defends EPF tax, says move was step to a pensioned society

Finance minister Arun Jaitley on Wednesday defended the government's intent behind taxing employee provident fund withdrawals even as the BJP's allies and rivals raised the pitch for a rollback.

The budget proposed that 40% of an individual's accumulated corpus in the employees' provident fund (EPF) and the National Pension System schemes would not be taxed at the time of withdrawal. This effectively meant that the remaining 60% of the corpus was taxable.

Jaitley said at an event organised by Rajya Sabha TV that the government's intent "was not to raise some revenue from this" but it wanted to "incentivise for a pensioned society".

Read | With the tax on EPF, how safe are your investments?

However, he said he was considering all the demands and would spell out the decision when he replied to the debate on the budget in Parliament.

Allies Shiv Sena, Akali Dal and TDP "conveyed" their message of disappointment to the BJP brass. "We had reservations about the budget proposal to slap tax, albeit partially, on provident funds. We had raised it at the appropriate platform," Anandrao Adsul, the Shiv Sena's chief whip in the Lok Sabha, told HT.

Within the Sangh Parivar too, there was disquiet. The RSS-affiliated Bharatiya Mazdoor Sangh threatened to escalate its protest. It dubbed the proposed EPF tax as "double taxation" as the gross salary of a salaried individual would already have been taxed.

"We are in discussion with stakeholders. There are many stakeholders. Now I cannot reveal many things. Our government is considering all options," labour minister Bandaru Dattatreya told the Rajya Sabha. "We are in touch with the ministry of finance. Government will also consider these issues. Up to now I can say this."

Tapan Kumar Sen of CPI-M took objection to the minister's claim, saying Dattatreya had not been consulted despite being a key stakeholder. AIADMK MP V Maitreyan said the government decision was "anti-working class".

Read | In defence of EPF tax: Govt not afraid of taking on moneybags

Naveen Patnaik's BJD, otherwise supportive of the government, was opposed to the proposal. "We heard there would be a partial rollback of the tax proposals on PF. But we want a full rollback. There should not be any tax on the PF money of the common man," the BJD's Lok Sabha leader Bhartruhari Mahtab told HT.

The move that could impact seven million private sector employees triggered howls of protest from subscribers and labour unions that termed it anti-worker. At present, withdrawal from the EPF is entirely tax-free.

The government on Tuesday moved into damage control mode, hinting that it was open to modifying the rule to tax only the interest earned on 60% of the EPF contributions made after April 1, 2016.

"We have received representations today from various sections suggesting that if the amount of 60% of corpus is not invested in annuity products, the tax should be levied only on accumulated returns on the corpus and not on the contributed amount," the finance ministry said on Tuesday.

Sun Capital

Budget 2016: Foreign investors can now establish ARCs in India

Sun Capital: Budget 2016: Foreign investors can now establish ARCs in India 

MUMBAI: The asset reconstruction companies got a huge leg up from the Union Budget
with relaxation in sponsor holding limit, 100 per cent foreign direct investment and a
complete passthrough of income tax. Finance Minister Arun Jaitley announced easing of
sponsor holding limit to 100 per cent from the current 49 per cent paving the way for foreign
investors to set up an ARC in India.

"I propose to make necessary amendments in the Sarfaesi Act to enable the Sponsorer of
an ARC to hold upto 100 per cent stake in an ARC and permit noninstitutional investors to invest in securitization receipts," Jaitley said.

Currently, no sponsor can hold more than 50 per cent of an ARC's shareholding either by
way of FDI or by routing it through foreign portfolio investor controlled by the single sponsor.

"It looks very clear now that a foreign entity can also come in and establish an ARC in
India," VP Shetty, Executive Chairman, JM Financial ARC told ET. "Easing of sponsor limit
would certainly help ARCs to strengthen their capital base."

"The easing of sponsor holding limit will resolve capital issue for the ARCs to a very large extent," Siby Antony, MD & CEO, Edelweiss ARC told ET. "It's a good thing that the budget has given a lot of importance to ARCs for NPA management."

The government also relaxed foreign direct investment rules for ARCs by permitting 100 per cent FDI through the automatic route. The investment basket of foreign portfolio investors will now be expanded to include securities issued by such special purpose vehicles.

"Earlier only QIBs defined by Sebi were allowed to subscribe now it has been expanded, though we need little more clarification on who all will be part of non institutional investors," Antony added.

The Finance Minister also announced a compete pass through of income tax for all securitization trusts. "I propose to provide a complete pass through of income tax to securitization trusts including trusts of ARCs," Jaitley added. "The income will be taxed at the hands of the investor instead of the trusts."

The measures announced by the FM is aimed at enabling banks to clean their balance sheet which is saddled with rising bad loans.

"We have been representing to the government and RBI to allow us to have more capital so that we can participate in the market more significantly," Shetty added. "All the ARCs together have Rs 4000 crore of capital invested, with this capital our capacity to invest in bank bids is limited."

Sun Capital Advisory Services

Budget 2016 gives massive push to affordable housing supply and construction activity, seeks to spur demand

Sun Capital: Budget 2016 gives massive push to affordable housing supply and construction activity, seeks to spur demand

NEW DELHI | BENGALURU: The budget announcement on allowing 100 per cent deduction for profits to housing projects building homes up to 30 sq metres in the four metro cities and 60 sq metres in other cities is likely to spur supply of affordable homes, demand for which makes for almost 90 per cent of the demand for homes in India.

(Representative image) Builders and real estate experts say the exemption for affordable housing projects would bring in a 15-20 per cent upside on profits after paying the MAT tax. 

"100 per cent deduction for profits to an undertaking in housing project for flats upto 30 sq. metres in four metro cities and 60 sq. metres in other cities, approved during June 2016 to March 2019 and completed in three years. MAT to apply," finance minister Arun Jaitley announced in the budget today. 

Builders and real estate experts say the exemption for affordable housing projects would bring in a 15-20 per cent upside on profits after paying the MAT tax for a real estate developer building such a project, making it easier for the developer to attract foreign and domestic investment for housing projects.

In the budget, the FM also said that construction of affordable houses up to 60 square metres under any scheme of the Central or State Government including PPP Schemes will be exempt from service tax. 

First time home buyers will get deduction for additional interest of Rs 50,000 per annum for loans up to Rs 35 lakh sanctioned in 2016-­17, where house cost does not exceed Rs 50 lakh. 

"This will push developers to redeploy money into building more affordable housing. The FM has tried to address supply side concerns on the housing front. This will bring in much greater supply, spur construction activity and employment connected to it. Anyway 90 per cent of demand for housing is in this segment," says Rajeev Talwar, chief executive officer of DLF. 

Getamber Anand, national president of industry body Confederation of Real Estate Developers' Associations of India (CREDAI) says the government has actually understood that ease of doing business has to become reality to spruce 0 Comments Ravi Teja Sharma , Sobia Khan Search for News, Stock Quotes & NAV's READ MORE : real estate | MAT | Budget 2016 | Arun Jaitley Comments Add Your Comments actually understood that ease of doing business has to become reality to spruce up the GDP. 

"There has been a lot of rationalization of taxes. Small pain points of the real estate industry like harassment by excise department on ready mix concrete being manufactured on site for self use have been addressed," he says. 

In his speech, Jaitley extended excise duty exemption, which is presently available to concrete mix manufactured at site for use in construction work to ready mix concrete as well. 

The big challenge before the industry, Anand says, is to now lobby with states to increase density norms to achieve 30 sq metres and 60 sq metres of housing. 

In Haryana, for examples, the density norms are so low that you cannot do 30 sq metres of housing at all. 

"Supply of these kinds of homes cannot increase unless density norms area changed and density is increased for housing projects," he explains. 

Ashish Puravankara, managing director of Puravankara Projects says there is a huge shortage of affordable homes across cities. 

"The enhanced home loan interest deduction will further encourage buyers to invest more in this segment. This will further encourage private participation in affordable housing," he says. 

Anand of CREDAI says the budget has put the onus on real estate developers to finish houses within three years of start if they are to avail the exemption for affordable homes. "This would also be a challenge for us in the absence of single window clearance for project affordable," he says. 

"The government's service tax exemption on houses less than 60 sq m, and the additional exemption of Rs 50,000 for housing loans up to Rs 35 lakhs for homes not above Rs 50 lakhs will both likely improve first-­time home buyers' sentiment," says Jason Kothari, CEO, Housing.com. 

Shishir Baijal, managing director of property consultancy Knight Frank India says the housing sector will get a push from both supply and demand side. 

Baijal pointed out that the government's focus on digitization of land records is in the right direction especially in the rural areas, which will render land records free from encumbrances. 

The budget has also increased the limit of deduction of rent paid under section 80GG from Rs 24,000 per annum to Rs 60,000, to provide relief to those who live in rented houses

Sun Capital Advisory Services

India Budget 2016: Winners and Losers

Sun capital: India Budget 2016: Winners and Losers

Arun Jaitley, India's finance minister, Jayant Sinha, State finance minister, second right, and other members of the finance ministry in New Delhi, India, on Feb. 29

India’s annual budget is one of the nation’s most closely watched events -- not just for the numbers, but for the political message during a speech that runs for about 90 minutes.

This year rural villagers came away as undisputed winners, with Finance Minister Arun Jaitley announcing plans to "transform India for the benefit of the farmers, the poor and the vulnerable." That was expected: Prime Minister Narendra Modi lost a key state election in November, and faces as many as nine more contests next year. Here are the winners and losers.

WINNERS:

• Farmers -- pledges to double income of farmers by 2020, allocates 360 billion ($5.3 billion) to agriculture and farmers’ welfare; steps to ensure a greater share of retail food prices reach producers; announces 200-billion-rupee irrigation fund and record 9 trillion in credit for farmers. Affected companies include Shakti Pumps India Ltd., Jain Irrigation Systems Ltd.
• Poor families -- 100 percent of households to have cooking gas within three years; 100 percent of villages to have electricity by May 1, 2018.
• State-run banks -- 250 billion rupees to recapitalize government-controlled banks. "If additional capital is required by these banks, we will find the resources for doing so," Jaitley said. “We stand solidly behind these banks." Shares of State Bank of India Ltd. and Bank of Baroda could be affected.
• India’s biggest commodities exchange -- MCX Ltd. headed for a three-week high on the budget’s proposal to expand foreign direct investment in the exchanges.
• Housing developers -- 100% deduction in profits for affordable housing projects approved by March 2019. Projects must be built within three years. Shares of DLF Ltd., Unitech Ltd. could benefit.
• Tax litigants -- one-time dispute resolution scheme for those involved in retrospective tax disputes to pay only arrears; interest, penalty to be waived. Vodafone Group Plc, Cairn India Ltd. could gain.
• Infrastructure projects -- allocates 2.21 trillion rupees in total outlay for roads, railways and ports. Larsen & Toubro Ltd., India’s biggest engineering company, could see a boost.
• Energy industry -- "calibrated" market-based pricing to incentivize deep sea hydrocarbon exploration; 30 billion rupees a year to boost nuclear power investment. Reliance Industries Ltd., Oil & Natural Gas Corp., Oil India Ltd. could benefit.
• Startup Investors -- Profits made after two years of holding exempt from capital gains tax, compared with three years earlier. Move to benefit angel investors, seed funds and other early backers of startups.

LOSERS:

• The High Rollers -- 1 percent cess on luxury cars valued at 1 million rupees or more; surcharge on income tax raised to 15 percent from 12 percent on those earning 10 million rupees or more a year; additional 10 percent tax on those earning 1 million rupees or more in dividend income.
• Coal producers -- tax on coal production to double to 400 rupees per ton. Companies affected include NTPC Ltd., Tata Power Co., Adani Power Ltd.
• Smokers -- taxes on cigarettes to be hiked as much as 15 percent. Affected stocks include ITC Ltd., India’s biggest cigarette maker, and Godfrey Phillips India Ltd.
• Carmakers -- an infrastructure cess ranging from 1 percent to 4 percent on vehicles to help combat pollution. Shares of Maruti Suzuki India Ltd. fell to a 16-month low.
• Jewelry makers -- Excise duty on jewelry and higher threshold for exempt purchases. Companies affected include Titan Co.

Sun Capital Advisory Services

Budget 2016: Startups not excited, expected more from government

Suncapital: The startup world reacted with muted enthusiasm to the budget, showering mild praise on proposals, which were anyway anticipated, and urging the government to do more to remove burdensome tax rules. 

Finance minister Arun Jaitley kept the prime minister's word on tax breaks on profits made by startups, and followed through on another promise by proposing to amend the Companies Law to make it easier to start a business. 

These moves, however, were anticipated and most movers and shakers in the startup community were not overly excited by what they saw.

"PM Modi set very high expectations for startups in his January speech," said Ravi Gururaj, the chairman of software industry group Nasscom's product council, referring to Modi's address at the Startup India event organised by the government in New Delhi. "The budget today is lukewarm at best for startups." 

In addition to allowing 100% profit deductions in three out of the first five years for startups set up between April 1, 2016 and March 2019, Jaitley said investors in unlisted companies will be eligible for longterm capital gains treatment in two years instead of three.

Venture capital investors were asking to be treated on par with the public market investors for whom the time limit is one year. 

Vijay Shekhar Sharma, the founder of mobile marketplace Paytm, said that while reducing the time-frame for capital gains to two years is positive, it would not have any major impact because few investors exit in two years.
Moreover, since startups normally don't make profits in the first few years, tax breaks on profits are not very useful, either.

"Startups will still be liable for MAT (Minimum Alternate Tax), so the effective benefit is not likely to be very significant," he said. 

The NDA government — and particularly Prime Minister Modi —has been eager to project a startup-friendly image, engaging closely with founders and even coming up with its 'Startup India Stand Up India' programme to promote entrepreneurship. The government's initiatives have been generally wellreceived, but this budget seems to have fallen somewhat short of high expectations. 

On Monday, Jaitley also announced that the cabinet has approved the 'Stand Up India' scheme and allocated Rs 500 crore for Dalit and women entrepreneurs. 

iSPIRT said that the proposals to make it easier to start up, capital gains relaxation and the plan to tax income from patents at 10% were all good moves.

But confusion between "goods" and "services" for online downloads has not been cleared and foreign entities continue to sell to consumers without paying any tax here.
"The budget is semi-sweet with specific sops in continuation of earlier policy announcements made by PM," it said. 

Bhavish Aggarwal, the cofounder of Ola, said he is pleased with what he sees in the budget.

"Creating inroads for entrepreneurship in the public transportation space and amendments in the Motor Vehicles Act to allow innovations will provide a strong impetus towards enabling mobility for citizens," he said. (With inputs from Biswarup Gooptu and Madhav Chanchani)

Sun Capital Advisory Service

How Startups Reacted to the Union Budget 2016

Suncapital: The much awaited Union Budget 2016-17 has finally been unveiled today. In his presentation, Finance Minister Arun Jaitley announced a 100% tax deduction programme for 3 years over a period of five years for startups approved before FY2019 under the Startup India scheme.

Moreover, to ensure that only deserving enterprises get to reap the benefits of the “Start Up Action Plan”, the government has strictly defined the term ‘Startup’ as “a company which would have equity funding of at least 20% by incubation, angel or private equity fund, an accelerator or angel network registered with SEBI endorsing the innovative nature of the business.”

Jaitley in his presentation, expatiated on a series of policy initiatives and schemes that aim at eliminating the common challenges startups come across, and ensure that MSMEs in the country get a fillip. Few of the key highlights are:

1. No tax on income from Startups. 100% deduction on profits for startups for 3 out of first 5 years; MAT to apply.

2. Shortening of the holding period of from three to two years to get benefits of long term Capital Gain regime in case of unlisted companies.

3.Registration of a company will take no longer than just a day under the Government’s 1 Day Incorporation Policy.

4.The corporate income tax rate for the next financial year of relatively small enterprises i.e companies with turnover not exceeding Rs. 5 crore (in the financial year ending March 2015) is proposed to be lowered to 29 % plus surcharge and cess. The new manufacturing companies which are incorporated on or after 1.3.2016 are proposed to be given an option to be taxed at 25% plus surcharge and cess provided they do not claim profit linked or investment linked deductions and do not avail of investment allowance and accelerated depreciation.

Here’s how the Ecosystem Reacted to the Announcements:

NASSCOM welcomed the Union Budget 2016, while terming it as a mixed bag for the sector. The budget reiterates the 7.6% GDP growth rate for the country and provides a slew of incentives for the rural, agricultural sector to enable inclusive growth. Mohan Reddy, Chairman, NASSCOM said, “Our wish list for Budget 2016 included three key priorities – policy bottlenecks including ease of business; nurturing start-ups, products and eCommerce sector; and clarifications on transfer pricing to enable inward investments in India. Budget 2016 only partially covers these priorities. Extension of Section 10AA for SEZ units till 2020 is a positive outcome though the imposition of MAT on startups will not allow the full impact of the benefits to be realized.”

Expressing his happiness on Aadhar and IndiaStack, Vijay Shekhar Sharma, Founder and CEO, Paytmmaintained, “Finally, the government has provided legislative backing that will unleash the full potential of such an incredible platform. With the focus on digital payments and incentives to startups, the Finance Minister has boosted our Prime Minister’s Digital India and Startup India plans. Overall, the budget creates a strong foundation for sustainable growth in rural & urban India. Steps to further improve Ease Of Doing Business will drive entrepreneurship which is essential for job creation.”

Putting forth his opinion on the matter, Ajay Jalan, Founder & Managing Partner, Next Orbit Ventures said, “We welcome the initiatives taken by The Finance Minister Mr. Arun Jaitley, however we were looking forward for government support in creating a positive environment pertaining to venture capital (VC) and private equity (PE) funds in India, and bringing it at par with the global standards. We were expecting regulators should help unlock domestic capital pools by encouraging institutions regulated by them to invest in VC/PE asset classes. Pensions & provident funds should have been encouraged and investment limits for banks & insurance companies in VC/PE Funds could have been increased from 10% to 25%.

Here’s what Siddhartha Roy, CEO of Hungama.com opines- “The Union Budget 2016 has stepped in the direction to pave the way for rural digitization with a focus on digital literacy. The aim to connect 6 crore households will provide a stronger reach and deeper penetration for digital and technology driven services in rural India thus allowing residents a plethora of services. The digital literacy scheme announced by Mr. Arun Jaitley in rural India will not only give rise to increased manpower but also boost employment generation. The budget is an indication of the government’s resolve towards the Digital India scheme.”

Similarly, Manish Dashputre , Co-Founder, Medidaili, maintained, “We welcome the 100% tax deduction for start ups for 3 years as announced by the government today. However, tax exemption alone will not help spurt the government’s ambition of boosting the start up environment in India on a large scale. Exemption from indirect taxes including MAT would have greatly reduced the compliance burden. Even though the budget has announced several favourable measures, a clear framework to translate policy actions needs to be put in place to foster the start up ecosystem.”

Talking on the same line, Sumit Chhazed, Co-Founder, CredR  stated, “The Union Budget 2016 did not have much to look out for the start-up community, as we were hopeful to see some on-ground initiatives from the government to further ease regulatory clearances policies. Prime Minister’s declaration of 100% tax deductions for new startups for first 3 years is definitely an optimistic move towards nurturing entrepreneurship and facilitating ease of doing business. Government’s effort to provide skill development and training to youth along with implementation of digital literacy will help further providing a boost to the start-up ecosystem. We are hopeful to see more immediate action from the government in fostering a conducive environment for the entrepreneur community.”

Likewise, Pramod Saxena, Chairman and MD, Oxygen Services is of the opinion that  the general direction of the budget as it lays emphasis on development of the rural sector, digitization and reforms in banking is right.  He said, “The digital literacy mission that has been announced which will target 6 crore households with financial literacy, with this the digital connect and payments connect will play an important role. Also, statutory status to Aadhaar will play a very big role in promoting digital payments, social benefit transfers and allowing several services beyond banking & insurance to be also be brought into its fold, whether it is government subsidies or government payments it will open a way for more government payments and subsidies to flow into the financial inclusion program.”

Last but not the least, expressing his thoughts on the subject, Manish Kumar, Co-founder & CEO GREX said, “We believe the Union Budget 2016-17 is well aligned with Prime Minister’s ‘Make in India’ and ‘Startup India’ campaign. The budget focuses clearly on growth, development, job creation and creating a better environment for doing business in India. Besides a particular focus on startups by giving them exemption on their profits for the first three years is a welcome move. The relaxation in capital gain tax for investment in Funds of Funds and reducing the time frame to two years from three for availing long term capital gain tax benefit in the unlisted space will further boost the investment in startups.” Adding further, he stated, “Keeping the ‘Digital India’ momentum rolling during the budget, introduction of electronic auction platform for the private placement market in corporate bonds is a welcome move.”

The Union Budget 2016 has been well accepted by the ecosystem, overall.  However, there is a certain uneasiness that the industry has expressed on the imposition indirect taxes including MAT. Moreover, the effective implementation of the policies that have been announced by the government, is also something that needs to be waited and watched. Nevertheless, the startup community in general, looks quite happy with the government’s emphasis on narrowing down the digital gulf in the country; a move that would definitely help budding enterprises grow faster and expand their footprint across geographies.

Sun Capital Advisory Services

Budget 2016: Jaitley walks a tightrope to fund infrastructure

Suncapital: Budget 2016: Jaitley walks a tightrope to fund infrastructure.

Finance minister Arun Jaitley’s third Union budget had a theme—Transform India. And while reading out the budget speech, Jaitley termed infrastructure and investment as the fifth support pillar of the theme championed by the National Democratic Alliance (NDA) government.

Given that infrastructure forms the backbone of the government’s flagship programmes such as Make in India, the budget announced a higher public spending to support infrastructure development.

The total outlay for infrastructure announced in the budget for 2016-17 is Rs2.21 trillion compared with Rs1.80 trillion in revised estimates for 2015-16. With NDAs focus on improving the country's transportation architecture, Rs2.18 trillion has been earmarked for roads and railways for the financial year 2016-17.

With tepid private investment due to a slowdown in emerging and developed markets coupled with weak domestic earnings by companies, public spending was required to keep the momentum going. However, the dilemma faced by the government was how to balance the spending and stick to the fiscal deficit targets of 3.5% of the gross domestic product (GDP) for 2015-16 and 3.9% for 2016-17.


The government decided to stick to the targets while creating space for infrastructure spending.

“We wish to enhance expenditure in the farm and rural sector, the social sector, the infrastructure sector and provide for recapitalization of the banks. This will address those sectors which need immediate attention,” Jaitley announced while laying the roadmap for the third year of Prime Minister Narendra Modi led government.

The Union budget proposed a capital expenditure of Rs1.21 trillion for the railways. This will support the national carrier which has mostly relied on monetising its assets and funding projects through external financing, as announced by the railway minister Suresh Prabhu on 25 February.

The government also earmarked Rs27,000 crore for Pradhan Mantri Gram Sadak Yojna and

Rs55,000 crore for roads and highways. Additionally, Rs15,000 crore is to be raised through bonds issued by National Highways Authority of India (NHAI).

“Our goal is to advance the completion target of the programme from 2021 to 2019 and connect the remaining 65,000 eligible habitations by constructing 2.23 lakh km of roads,” Jaitley said.

He also announced that contracts for constructing nearly 10,000km of national highways will be awarded in 2016-17.In addition, around 50,000km of state highways will be upgraded as national highways.

This allocation towards physical infrastructure projects comes in the backdrop of twin balance sheet problem as articulated by the Economic Survey—the stressed financial positions of staterun banks and some business houses.

Experts agree with the government’s strategy.

“Given the fiscal deficit constraint, I think the numbers for infrastructure announced today look good. There has been a hike of 20-30% in capital expenditure,” said Abhaya Agarwal, partner and public private partnership leader, EY.

Agarwal added that too much capital expenditure at one shot is not desirable given that one may end up investing in projects not worthy enough and lose market value.

An analysis of December quarter results of all staterun bank by news agency Press Trust of India shows that the cumulative gross nonperforming assets of 24 listed public sector banks, including market leader State Bank of India and its associates, stood at Rs3.93 trillion as on 31 December 2015.

As part of the comprehensive infrastructure development plan, the budget also focused on developing ports and airports.

“We are planning to develop new greenfield ports both in the eastern and western coasts of the country. The work on the National Waterways is also being expedited and Rs800 crore has been provided for these initiatives,” said Jaitley, while adding that the Airport Authority of India will revive the unutilised and underutilised airstrips across the country in partnership with state governments.

To provide further impetus to mobilise funds for infrastructure spending, a total of Rs31,300 crore will be allowed to be raised through bonds issued by NHAI, Power Finance Corp. Ltd, Rural Electrification Corp. Ltd and Inland Water Authority, among others.

Making public private partnership (PPP) as its pivot to attract private sector investment, the budget announced the government’s intent is to introduce a Public Utility (Resolution of Disputes) Bill and also guidelines for renegotiation of PPP concession contracts.

“A new credit rating system for infrastructure projects which gives emphasis to various inbuilt

credit enhancement structures will be developed, instead of relying upon a standard perception of risk which often results in mispriced loans,” Jaitley said.

Infrastructure development is necessary for realising a GDP growth of 7-7.5% for the next fiscal as projected by the Economic Survey released on 26 February. The Survey added that India could achieve a growth rate of 8-10% going forward.

“The government spending capacity cannot be increased overnight. So, taking into account other related announcements for ease of doing business and resolve to implement goods and services tax, the infrastructure sector is poised to gain,” said EY’s Agarwal.

Sun Capital Advisory Service