Food Processing sector Pre Budget Wishlist

Food Processing sector Pre Budget Wishlist

By Veera Lokesh Ayireddy – Consultant, KPMG

Introduction

India is world's second largest producer of food and has the potential
to be the largest with the current demand levels and government push.
Rapid urbanization, changing demographics and lifestyle, rise in
organized retail are contributing to the fast rise in the sector. The
sector contributes about 4% of the GDP and is a strong focus area for
the government to further the GDP growth. According to an India Food
Report 2008, released by Research and Markets, India's Food Processing
Market is estimated at over $182 Bn and is projected to reach $300 Bn
by 2015.

The Food Processing industry consists of segments like Dairy, Fruits
and Vegetables, Meat and Poultry, Fisheries, Grains and cereals,
Beverages, Confectionary and others. India is a strong producer being
the largest producer of milk, livestock, cereals, second largest in
fruits and vegetables, third largest in fisheries and top five in
rice, wheat, groundnuts, tea, coffee, tobacco, spices, sugar and
oilseeds. With such strong supply base, India has the potential to be
the one of the largest exporters, yet India's share in global food
processing trade is just 1.5%. The government has recognized the
potential of the industry and has given the sector a high priority.
Also, the low share of global processed food trade indicates that
there is a lot for the exporters and investors to gain.

Constraints hindering the growth of the sector

The tremendous potential of Indian Food Processing Industry is
constrained by several factors ranging from policy, lack of
high-technology agri-equipment, fragmented supply chain to poor level
of processing. The wastage levels across the value chain are very
high, resulting in lower level of processing. Infrastructure
bottlenecks also are responsible for higher wastage and lower export
share. The equipment used for farming/processing is mostly obsolete or
is not customised for the Indian context. There are too many
intermediaries in the supply chain raising the cost of inputs for the
processors and lower price realisation for the farmers. Also, Indian
quality and safety standards do not comply to the export requirements,
leading to FDA cracking down on the Indian exports.

Further drivers required for growth

To achieve the targeted growth significant investments need to be made
to strengthen the business across the value chain. Farmers should be
equipped with latest equipment customised for use in the Indian
context, provided with technical & commercial knowledge and market
intelligence through feasible means like SMS, Kiosks etc.
Infrastructure along the value chain needs to be strengthened by means
of an integrated supply chain and warehousing. Focus on Quality and
Safety management should be high. To enable all this, government
should provide easy financing, fiscal incentives for development of
training and R&D facilities.

Government Initiatives for the drivers

Indian government approved several food parks with an objective to
make the country's farm sector market-driven rather than
supply-driven. This would also help eliminate the intermediaries.
Also, integrated cold chain facilities are planned to be set up across
the country so that there is no missing link from farm to the
retailer/consumer. National Institute of Food Technology,
Entrepreneurship and Management (NIFTEM) is proposed to be set up with
an investment of Rs 245 crores. This institute will function as a
knowledge centre for food processing. Government has come up with
plans and mechanisms for financing support, strengthening of
institutes at central and state level and improvement of R&D in the
sector.

The Road ahead

Government has taken credible and strong steps forward in improving
the growth potential of the sector. However, there are still some
issues that need urgent focus:

Financing and Fiscal Incentives

Most of the incentives focus on small scale industries,
depriving the sector of scale advantages and hence exports
uncompetitive. Financing to Food Processing sector should be a
priority and should be made easier, probably by having a dedicated
bank for food processing and also systemically developing the
infrastructure for micro finance activity.

Hard Infrastructure

The government should speed up the implementation of Integrated
Cold Chain and supporting infrastructure like warehouses, rural roads,
etc. Also, the government needs to go the extra mile in making Food
Parks a success. The food parks have not taken off yet and the reason
quoted by many players is the consolidated nature of the parks as they
stand today. Industry feels that instead of few large Food Parks where
an investor makes one huge investment, there should be many food parks
distributed across the country with each player investing in setting
up a large number of smaller units.

Soft Infrastructure

The focus on R&D though is recognized, is still not implemented
and supported at a policy level. There should be universities having
research wings supported by the government and fiscal incentives
should be extended to companies setting up R&D centres in India.

The government should also come up with ways to increase market
intelligence of the farmers. The case of 'Kenya Agricultural Commodity
Exchange' which facilitates trade by communicating the prices of more
than 42 commodities in 10 local markets through various channels like
kiosks, SMS on mobiles and an online platform for trading. This helps
remove the barriers to farmers and get a better price for their
produce by allowing them to sell even in the international market.

As demanded by the industry, the government should speed up
building the national reference data on nutrition parameters of all
agricultural and horticultural produce before implementation of the
mandatory nutritional labelling (Notification GSR 664E) for the
packaged food products.

Marketing Support

The state governments need to be more empowered to attract
investments in food processing sector by promoting the state as a
destination for agribusiness through targeted schemes and
communication in relevant global markets. They should also be provided
access to diplomatic mission in respective countries.

India needs to be strongly promoted as a destination for food
and culinary experience by conducting road show in the Middle East,
South East Asia and the OECD countries on the lines of incredible
India campaign to help promote and increase the consumption of Indian
cuisine in large export markets.

Policy and Regulation

Regulations governing Contract Farming should be extended to
Land Ceiling also. The land ceiling for contract farming should be
removed. Health and wellness is a major policy concern and the
government should specifically look at tax rebates for food products
positioned on nutrition and well being platform.

With the opening up of economy and the implementation of the WTO
regime, it is imperative for India promoters to streamline their
standards and overall food quality programmes for avoiding on tariff
barriers in OECD markets. Hence policy needs to enable training on
HACCP, GMP and GHP requirements. Separate community boards promoting
the interest of specific commercial crops on the lines of tea or
coffee or spice boards need to be further strengthen in specific areas
of growth such as floriculture, medicinal and aromatic plants, etc.

In a nutshell, the government should take quick steps in encouraging
the Food Processing Industry by providing incentives across the value
chain and help players reap benefits of consumption-led Indian demand
and growing export possibilities.
**

GST – Challenges Abound

GST – Challenges Abound

By K R Girish, Partner, B S R & Co and National Leader Indirect Taxes

With a majority Government back in power, India is all set to
transition to a unified indirect taxation regime in the form of GST.
The prospect of a regime with uniform taxes across states which is
supposed to remove cascading of taxes with simplified compliances, has
made the industry both excited and anxious about the timely transition
to GST.

Although the Finance Minister recently reaffirmed the original
timeline of April 2010 for GST implementation the enterprising factor
argue that the proposed implementation may have to be deferred by
another year. Political reasons apart, the time required to get the
entire implementation infrastructure in place could trigger the delay.
This may not necessarily be dire news, as it gives the Government
sufficient time to iron out various structural issues that would
accompany the transition.

A lot of deliberation has already happened at various levels on GST,
and the focus so far has been primarily on the broad contours, such as
a concurrent dual GST system, uniformity of rate at State and at the
Central level. Needless to say these are the building blocks of any
tax regime, and any flaws in the overall design would be a nightmare
for all stakeholders. Though the attention to the basics is well
justified, it does not, in any manner, undermine the need for
addressing the granular details of GST implementation, such as the
taxable event, place of supply rules, cross credit mechanism, taxable
value, etc. Each of these would have a significant bearing on
taxpayers and hence, need to be thought-through.

For instance, currently Excise duty is levied on the manufacture of
goods even though it is payable at the time the goods are removed from
the factory. Further, Service tax is levied on the provision of
taxable services, and is also payable on advance payments. As for
other levies such as VAT, the taxable event is not linked to the
receipt of consideration. Under GST, there would be a common taxable
event and triggering events for deposit of tax. In most other
countries, GST is applicable on supply of goods or services. A similar
common event (i.e. supply, as opposed to manufacture/ receipt of
consideration) would need to be devised for India. Further, the fate
of existing registrations and compliances associated with the other
existing events (e.g. excise on manufacture) would also need to be
decided.

Taxable base is another aspect that merits consideration. Currently,
while the taxable consideration under most levies is derived from
transaction value, the specific valuation provisions differ across
levies. For instance, consideration received in kind (e.g. goods) is
not liable to VAT, whereas the service tax laws provide for special
valuation principles in such cases. Also, unlike Excise, under
service tax and most VAT laws there aren't any special provisions for
valuation in case of related party transactions. Thus, the valuation
mechanism under GST would have to be devised taking into account the
divergent provisions existing today for the different levies.

It appears that the Empowered Committee has suggested discontinuance
of location and industry based exemptions, and conversion of existing
exemption schemes to cash refund schemes after collection of tax.
However, there is no clarity on how some of these incentives would
continue to be relevant for the companies after transition to GST.
For instance, as discussed earlier, if the taxable event of
manufacture (for levy of excise duty) is replaced with supply of goods
under GST, then the existing excise exemption in States like Himachal
Pradesh, Jammu & Kashmir, etc. will become redundant. Therefore, the
Government would need to come out with a scientific basis of reworking
such benefits in alignment with the proposed GST regime.

Similarly, if the Central Sales Tax (CST) is phased out and replaced
with some form of destination based tax, then the fate of CST existing
exemption/ concession, being offered by most States to companies
setting up new manufacturing units or undertaking substantial
expansion, will have to be revisited. It may be noted that the MoUs
signed by some of the companies recently with the State agencies
oblige the latter to protect the incentives upon transition to GST!
However, the mechanism for making good the same has yet to be
deliberated upon.

On the administrative front, while the authority to levy/ collect tax
may be allocated between Center and States as part of the blueprint of
GST, extensive time and resources would also need to be spent on
training, organizational restructuring, etc. Successful
implementation would also require lot of interpersonal skills, in
order to change the mindset of the authorities at the ground level and
help them embrace the new regime.

The issues highlighted in this article are just the tip of the
iceberg. There are several other important issues that are
fundamental to the GST framework, and are yet to be deliberated with
all the stakeholders. These include cross credits between Central and
State GST, coverage of sectors (such as hospitality, entertainment,
legal) which currently have limited exposure to service tax/ VAT,
treatment of works contracts, etc. While it is important to stick to
and work towards the proposed timeline of 2010 for GST implementation,
inadequate attention to the details of GST framework cannot be used as
an excuse to justify the implementation.

To conclude, a comprehensive, well thought out GST regime is far more
important than a hastily introduced GST regime that requires extensive
patchwork for every issue encountered ! Industry will be more than
willing to wait for another year where the draft of the law is
thoroughly debated and then introduced, no hasty action please !!!
**

Changes in Tax codes and what does it augur for India

Changes in Tax codes and what does it augur for India
Aravind Srivatsan

Post the historical US presidential elections, it was evident that
getting the economy back on track would be number one on the agenda of
the new US President Barack Obama. The US is presently facing its
worst economic crisis in 50 years and the new government's revenue
proposals were keenly awaited. In this background, on May 4, 2009,
the US president introduced proposals relating changes in the tax law
for Fiscal Year 2010 and a week later (on May 11) the administration
issued general explanations for these revenue proposals (commonly
referred to as 'the Greenbook').

The present system of international taxation in the US is exceedingly
complex, a combination of high statutory rates and a host of
exemptions, deductions and special provisions for specific types of
businesses and entities. Thus, effective tax rates are much lower
than statutory tax rates. As per a 2004 study, US companies paid an
effective tax rate of 2.3% while statutory corporate tax is 35% (among
the highest in industrial countries)1. In these times of economic
turmoil, the new provisions are primarily at least in theory an
attempt to make US corporations shift business back to US, thereby
create employment and consequently improve the state of the US
economy.

In this context, it is also pertinent to note that, the US has been
taking other measures to curb international tax avoidance. For
example, the US has been inserting / strengthening the limitation of
benefit clause (LOB) in various treaties to curb tax benefits through
treaty shopping. For example, a new treaty between Hungary - US is
also expected to be signed which includes a LOB clause.

Immediate Industry reactions

The above proposals are expected to increase the cost of US
Corporations doing business outside the US (thereby encouraging
investments within the US). However, another view is that the above
proposals may have a negative impact on businesses by making US
multinationals less competitive in the global market. The deferral
provisions are particularly expected to impact many of the large
technology companies and have therefore attracted flak from companies
operating out of the Silicon Valley. Multinational groups (such as GE
and Microsoft) are now joining together as a coalition to lobby
against Obama's plan.

The US tax proposals could require multinational businesses to
restructure their global operations. However, these are early stages
of the proposal and it is not possible to predict which of these
proposals will be enacted into law and at what terms.

What does it augur for India

The immediate knee-jerk reaction has been that the tax proposals will
affect outsourcing to India. This can also be related to the fact
that Obama while introducing the proposals famously remarked that the
US tax code is "a tax code that says you should pay lower taxes if you
create a job in Bangalore, India, than if you create one in Buffalo,
N.Y".

In this regard, the questions that first come to the mind are: Whether
US multinational companies invest in India only to take advantage of a
favourable US tax system? Is India a tax haven? Is not the highly
skilled manpower pool, cheap labour and other cost reduction benefits
the main reason?

Therefore, even assuming that these proposals indeed get implemented
the advantage of locational savings from India would have to be
weighted against the tax impact in US. A cost-benefit evaluation
would be necessary before deciding on further investment into India.

New outsourcing contracts have clauses which mandate that certain work
be delivered onshore. If the new proposals are implemented it could
further impact the performance of these companies and their market
prices.

In this globalised world outsourcing assists in making US goods and
services cheaper, thereby making them more competitive. Though tax is
an important factor in making business decisions, companies will
continue making an exhaustive cost-benefit analysis before making
economic / business decisions. The Indian government could
independently consider extending or providing new incentives to ensure
the competitiveness of the Indian outsourcing industry considering the
importance of the service sector to GDP.

Key Trends in other countries

It is interesting to note that whereas the US administration is
proposing measures that may negatively impact captive investments of
US Corporations abroad, many European countries continue to exempt
foreign source income to facilitate accelerated repatriation of funds
from overseas investments in hopes of revival without attaching
strings like that proposed by the US. Countries such as United
Kingdom, Japan, and Canada are also considering similar proposals.
(From 1 April 2009, 95% of dividend income received by Japanese a
corporate will be exempt from corporate tax in Japan, if it owns at
least 25% of the shares in the foreign investment.)

Also, average corporate tax rates among the 106 countries surveyed
this year have fallen again, from 26.8 percent in 2007 to 25.9 percent
in 20082.

But it is not just in rate changes that government tax policies are
revealed. In a move that is being replicated elsewhere in the world,
both Singapore and Germany have introduced specialized groups within
their tax authorities, focused on helping businesses to improve their
handling of VAT/GST. This may reflect another growing trend, seen in
Europe in particular, towards greater co-operation and transparency
between tax authorities, businesses and their advisors. While this
process may result in improvements and simplifications, the ultimate
objective is clearly to ensure protection of the tax base and prevent
businesses from moving their tax structures to other locations.

India Budget 2009

India Budget 2009 would have to weigh the above global developments.
Taking a cue from the fact that US has provided an exemption for
research and experimentation expenses from the proposed deferral
rules; India should also consider extending the sun-set clause for tax
exemption on research and development expenditure beyond March 2012.
Also, going by the trend, reducing the tax rates would be imperative
to India to stay competitive.

In the context of international tax reforms it is also expected that
the government will usher such as anti-abuse rules that will empower
tax authorities to lift the corporate veil and look for what are
called 'avoidance' transactions. Other anti-avoidance measures could
include controlled foreign corporation (CFC) regulations and norms on
thin capitalisation.

India is well poised to be a safe reservoir for international funds.
Lessons from the global crisis clearly indicate that putting money
into India would be a safer bet especially for institutional investors
and pension funds. A fiscal policy which provides flexibility to
invest in banks/financial services and insurance could just help
recapitalise institutions operating in India and hasten the recovery
process in India including stabilising the dollar and the markets and
prove positive to implement the disinvestments in a positive
environment. The challenge for India would be to look more lucrative
to attract foreign investments and towards that our fiscal policies
need to be more supportive.
**

Power Sector needs to be empowered by the forthcoming Budget

Jayesh Kariya and Anish Sanghvi, Chartered Accountants based in Mumbai

Has India Inc done enough to improve investment in power sector? are
investors satisfied with the incentives available to investment in
power sector ? let us take a sneak preview of the present situation of
the power sector and the expectations that the power sector has from
the Budget 2009.

According to the report from the Central Electricity Authority (CEA),
at present, India has an installed power generation capacity of around
147,000 Megawatts ("MW") – a current deficit of almost 20,000 MW.
Equally important are the transmission and distribution activities for
power. Recent estimates indicate that to sustain a level of GDP growth
rate of 8% until 2012, India would need to increase its installed
capacity to 227,000 MW. Even in a low growth scenario of 4%, India
would still require an installed capacity of 183,000 MW by 2012.
Clearly, the country's economic growth runs the risk of being derailed
if urgent steps are not initiated to overcome the substantial power
deficit.

This indicates a requirement for significant investment in the power
industry. Although a proportion of this investment will be made by
the public sector to achieve capacity additions of the magnitude
required, substantial private investment is a must.

One of the most difficult challenges faced for infrastructure projects
is to achieve financial closures for the project – this is more so the
story for power projects. Obviously, to attract private investment,
the Government needs to give appropriate carrots to investors by
providing incentives to investors – one important form of incentive
for investors is tax breaks and exemptions and a consistent tax
policy.

In contrast, the Government took two steps backwards in 2007, when the
Budget rolled out complete overhaul of the tax provisions relating to
income of venture capital funds investing in the power sector.

Under the erstwhile provisions, income of venture capital funds from
investments made in any sector was not subject to tax in the hands of
the fund, but was taxable in the hands of the investors thereby
according a pass through status to the fund and taxing the investors
directly.

However, with the changes made in 2007, the tax exemption available
under Section 10 (23FB) and the pass through status accorded under
Section 115U was restricted to investment made only in specified
sectors. More importantly, while this list contains most activities
that ordinarily classify as infrastructure development (for eg., road,
ports, airports, water supply, etc), the power industry which is a key
to India's economic development was missed out. This resulted into
step motherly treatment to the power sector given the need for
development of massive power infrastructure.

Given this clear mismatch, it is imperative that the Finance Minister
appreciates the need of the hour and makes necessary amendments to
these provisions while presenting this year's budget and include power
sector as one of the sectors in which investment would qualify for
pass through treatment for the fund. Of course, the preference may be
given to all sectors which can be classified as infrastructure, but
including the power industry may be a good start to begin with. Such
an amendment, if implemented, would clearly attract venture capital
funds investment in this investment starved sector.

One other area that the Finance Minister needs to address in this
budget is the tax holiday provisions relating to the power sector.
Currently, tax holiday is available to undertakings which commences
power related activities (whether generation, transmission or
distribution) by 31 March 2010. Given the time period required to set
up power plants to meet with the deficit situation, this time limit
should be extended to at least 31 March 2015 so that there is enough
visibility to the players who proposes to make investment in the power
sector. This will also attract investment in the sector as well as
new players.

Also, given the huge requirement for capacity additions and the
evolving business environment which is waking up from recessionary
trends, there are tremendous opportunities of consolidation in the
form of inorganic growth. Mergers, acquisitions, sell-offs are likely
to be the order of the day. In such an era, restriction of benefits
on account of restructuring or acquisitions would hamper the growth of
the industry. In order to support the sector, the Finance Minister
should consider the removing the restrictions introduced in section
80IA(12A) by the Finance Act, 2007 and reinstate the benefits to the
transferee entity on transfer of undertaking under amalgamation
/demerger.

Power sector will continue to be focus area of the Government as well
as the investors given the huge demand supply gap and getting the
right investment is also essential. The Finance Minister should
consider implementing some of the requests of the sector as it would
help the sector to attract significant investments, which would give
the much needed fillip to this sector.
**

Reality of the Indian Realty Sector

Reality of the Indian Realty Sector

Jayesh Kariya and Bhairav Dalal, Chartered Accountants

Ever since the Real Estate sector opened up to Foreign Direct
Investment in March 2005, the sector has seen unprecedented, to an
extent, uncontrolled, growth. The sector has grown by 30% to 35% in
the past five years. In terms of product mix, residential contributed
to 80% of the real estate and the remaining 20% is for commercial
property which included offices, shopping malls, hotels, hospitals,
multiplexes and entertainment centers. The glory did not continue
longer and witnessed the shadow of "dark clouds"..

The global slowdown, high interest rates and low confidence in the
economic outlook have impacted the realty sector hard in the latter
half of 2008 and early 2009. The control measures that RBI had
undertaken to control the growth have resulted in cash crunch
situation and an exponential increase in the cost of financing. The
end user has to bear such increased finance cost in the form of
increased rates. The home loan interest rates have increased
proportionately, putting the customer into a Catch 22 situation. The
commercial property segment is affected by high capital cost and
reduction in rental values while the residential sector on the other
hand felt a big dent as the supply has outpaced the demand. Though,
despite the positive sentiments displayed by the Indian economy very
recently, this sector is still grappling with the challenges posed by
multi- pronged pressures.

The stimulus package provided by the Government in the form of
'Affordable Housing' and the slashing of the mortgage rates by the
banks is expected to provide an impetus for the property market from
the downward trend it has experienced, at least in the low to mid end
housing segment. This could help the Indian economy recover,
supported by a large, young workforce; gradual but consistent
liberalization reforms and a high rate of consumer and private-sector
savings. The growing population and economic expansion will mean that
India needs not just homes but offices, schools, hospitals, and
entertainment centers. Addressing infrastructure needs will be an
important priority to support this property development.

But it's not enough to just provide for the stimulus packages. To
generate interests from the developers and promoters, it is important
that the Government announces certain additional measures like tax
incentives and exemptions to the developers, which can be passed on to
the consumer in the form of lower property prices. Stamp duty is
another high cost for property transactions along with the fact that
the same varies across the states. Currently, it is being charged on
both, the land and the apartment. It is imperative that Stamp duty and
registration charges be rationalized for this sector to sail through
this turbulent phase.

Some of the policy measures mentioned below will boost the growth of the sector:

* Accord infrastructure industry status to the Housing Sector as
it is the second largest employer next only to agriculture and it will
help the cash starved sector in the form of bank funding;
* Provide clarity on regulations and guidelines for Real Estate
Mutual Funds (REMFs) as it provide alternate investment avenues to the
investors as well as developers to augment their fund requirement;
* Opening up of ECB regime for the real estate sector especially
for mass economy housing and mega projects

Additionally, some of the tax incentives discussed below could create
positive impact on the sector:

* Increase in limit for deduction for interest paid by end user on
home loans from Rs. 1.5 lacs to Rs. 3.00 lacs. This could encourage
people to explore the opportunity of going for their 'Dream Home'
* Tax exemptions for mass and economy housing projects similar to
section 80IB(10)
* Clarity on the taxability of the lease rentals on the commercial
property. Currently there seems to be different views in the market
and the litigation around this with the tax department is just
increasing the need to clarity.
* Tax Depreciation is not allowed as a deduction when the rental
income is taxed as house property income. Allowability of
depreciation against income from house property should be considered
to provide some boost to the weakening commercial property sector.
* Industrial Parks is an area which promises the growth of the
Indian Economy. Tax holidays for units in Industrial Parks should be
brought at par with Special Economic Zones;
* Repeal the impracticable and draconian provision of section 50C
requiring imputation of notional stamp duty value for the purpose of
taxation in today's decayed market;
* Rationalization of stamp duty and registration charges
*

On indirect taxes, the industry would hope that the current reduction
in excise duty rates are maintained, as any increase in indirect tax
rates transpires into increased cost of construction, adding burden on
the otherwise sluggish demand. The concern on the change in indirect
tax rates stems also from the apprehension that the finance minister
may, in order to move towards the proposed onset of GST, consider
revisiting indirect tax rates.

Talking about GST, the infrastructure industry would also be eager to
understand as to whether the concessions or benefits that are
currently available to infrastructure projects would continue under
the GST regime, or whether the same would be discontinued. One view in
the matter could be that given the basic premise of the GST being
implemented with no exemptions/ concessions, the same premise should
be extended to infrastructure projects also. However, another view
could be that given the need for development of infrastructure in the
country, the infrastructure projects should be accorded a special
status under the GST regime with earmarked benefits/ concession/
exemptions. Of course, the matter requires deliberation not only from
a fiscal perspective, but also from an overall socio political
perspective. Whatever be the outcome, which the industry would
definitely be waiting with bated breath, it would at least be hoping
that the benefits which are currently available, are given in a manner
such that they do not discriminate between the various infrastructure
projects. A case in point could be while construction of ports and
airports currently enjoy service tax exemption, no exemption is
available on construction of power plants, which is as much an
important clog to the wheel of infrastructure. Similarly, while
development and construction of infrastructure projects enjoy the
service tax exemption, services relating to maintenance of same
projects attract service tax. And then there are issues in
interpretation on the scope of existing exemptions, for e.g. would a
metro project be regarded as "railways" for the purpose of service tax
law and hence should enjoy the benefit of service tax exemption that
is currently available to railways?

Policy changes and tax incentives mentioned above will provide timely
help for the sector and will certainly help in re-building the
confidence of the players in the sector.
**

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Indian Venture Capitalist Association's expectations from Budget 2009

 

Dear Sir,

As a representative of the Indian Venture Capitalist Association (IVCA), India's premier PE/VC body, my wish list to the Finance Minister for the Budget 2009 is as follows:

1. Approval process for seeking registration as an FVCI should be hastened. The restrictions on select areas of investments should be removed as it discourages foreign investment in India.
2. Tax pass through for domestic venture capitalists should not be restricted to the few identified sectors.
3. Threshold value ascribed to Open Offers under the Takeover Code, i.e. 15%, is very low and becomes a major impediment for private equity investors.
4. The risk weight-age allocated to investments into VCFs should be reduced. Further, investments by banks or their subsidiaries into VCFs should not be counted under the capital markets ceiling.
5. The delisting process should be simplified and SEBI should set prudent timelines in delisting guidelines for a panel to take decision.
6. A new Press Note should be issued to bring uniformity, consistency and homogeneity in the computation of indirect foreign investments.
7. A new Press Note should be issued clarifying that NBFCs engaged in microfinance activities are not subject to Press Note 4 (2009). Separately, the prescribed minimum foreign investment requirement for NBFCs (US$ 0.5 million) should be reduced for those engaged in microfinance activities.
8. Tax regime for assessing LLPs should be resolved at the earliest.
9. Policy on allowing finances for domestic acquisitions should be liberalized.

Best Regards

 

Mahendra Swarup

President, Indian Venture Capital Association