'Budget should stimulate VC and PE investments'

T.C.M. Sundaram, founder & managing director of IDG Ventures India Advisors, says the budget should exempt investors in venture capital and private equity funds from taxation on sale of their interest.

Given the current challenges, what, in your opinion, would make for a good budget? What measures or proposals would you like to see?
The triple deficits of central fiscal deficit, state fiscal deficit and current account deficit are a matter of concern. There should be firm steps to bring them down, to reduce government debt and increase private corporate and infrastructure debt. I would like to see a central fiscal deficit of 4.5 per cent and a path to lower it to less than three per cent by 2015. There should be initiatives to reduce the current account deficit to 3.5 per cent by incentivising exports and disincentivising discretionary imports, and achieving a current account surplus by 2020. There is a need to identify and nurture new export industries that can generate a surplus of $100 billion by 2020.

The budget should be growth-oriented and stimulate investments in capital expenditure and capacity expansion that will drive/handle growth over the next five to ten years. It should reduce subsidies across the board and move towards market-driven rates. Subsidies should be managed by direct transfers to disadvantaged families. Infrastructure projects should be restarted and pending infrastructure projects should be completed. GST (goods and services tax) should be implemented as that will widen the tax base, and at the same time provide the benefit of set-off between VAT (value-added tax) and service tax. This will have the eventual impact of reducing inflation, by allowing companies to reduce/hold the prices of goods and services delivered

Given the constraints the government faces in raising revenue, do you see a case to increase income tax rates on the rich?
Yes, I think the government should consider increasing income tax rates on the super-rich.

If the budget does not meet expectations, do you fear that business sentiment would once again dip?
Yes, in terms of a slowdown in investments, businesses looking outside the country for growth, infrastructure firms defaulting on their loans and a substantial increase in bank non-performing assets.

Specific to your sector, what could the current budget do to improve conditions?
I would prefer the following changes in the budget to stimulate venture capital (VC) and private equity (PE) investments in the country:

Clarify and exempt investors in VC/PE funds from the taxation of sale of their interest on the pretext of deriving substantial value from underlying businesses/assets in India.

There are some niggling issues in GAAR (general anti-avoidance rules) that require to be clarified. Define objective criteria to check abuse of DTAAs (double taxation avoidance agreements), instead of the current subjective criteria.

Which budget, in the recent past, do you remember as having been a good one?
Frankly, none in the past five years.