Plans are underway to create a more welcoming environment in India for small or medium-sized enterprises, as ministers seek a clean break with outdated regulatory conventions.
In particular, they have turned their attention to a longstanding disparity in the capital-gains tax system, under which start-up investments are treated differently to stakes in listed equities.
That disparity is now set to be rectified in the nation’s forthcoming budget.
Speaking at a conference held by angel-investment hub Start Up India – attended by Uber chief executive Travis Kalanick – revenue secretary Hasmukh Adhia noted: “If somebody is making a hot investment in the equity market, if he keeps it for one year, then after [that time] there is zero capital gain.
“Compared with that, people who have been taking the risk of putting long-term equity investment in an unlisted security – like in the case of a start-up – have to pay 20%, even after three years.
“Now,” Adhia conceded, “this gap is too wide. I can assure you of this gap being bridged at the time of the budget.”
According to finance minister Arun Jaitley, also at the conference, India’s economic plans of the past few years have been typified by policies that “restrict the role of the state… as a facilitator”. However, the next budget is set to usher in a friendlier tone.
“We have already worked on an entrepreneur-friendly taxation regime,” said Jaitley – pointing out that some measures are already yielding effects for eligible firms. Further changes, though, will “require legislative provisions, which can only come as part of the [new] Finance Bill when the budget is presented”.
He also pledged: “The Reserve Bank and the government, acting in tandem, are going to add to bankers’ ability to lend with vigour, and in greater amounts.”
Jaitley added that the new direction of India’s economic policy – ushered in under reforming prime minister Narendra Modi – represents a “significant… landmark event” because it marks “a final break, or the ultimate break” with India’s Licence Raj: a complex web of regulations that firms were required to observe in order to carry out their activities, in line with India’s commitment to a planned economy.
As Jaitley explained, under the Licence Raj, “there was an invisible role of state control over land permissions [and] foreign investment proposals… Unless the political nod came to venture into newer areas which involved a lot of capital, a lot of energy going into it, an entrepreneur or investor was normally reluctant [to go into that territory].”
India’s budget will be unveiled on 29 February