Budget 2014: What do PE fund managers have to say

Budget 2014: What do PE fund managers have to say

By Shruti Ambavat

  • 10 Jul 2014
Budget 2014: What do PE fund managers have to say

National Democratic Alliance government’s first Union Budget has brought cheers and disappointments in equal measure for the investor community in India.

Experts are of the opinion that the fiscal deficit target of 4.1 per cent for the year 2014-2015 is too ambitious with no cut in subsidy spends across sectors. Investors strongly feel the need to relook government’s decision to ignore the removal of retrospective taxation given the ongoing litigations.

Private equity fund managers feel the government’s impetus towards infrastructure sector will push the sector towards profitability. The announcement of developing 16 shipping ports in India and targeting 8,500 km through national highways is a clear mark of pushing India towards the brink of infrastructure revival.


The big thrust on Foreign Direct Investment (FDI) in defence and insurance has not surprised many. The fund managers do not consider it to play a pivotal role in the economic revival of the country.

Here are some of the quick reactions of private equity managers active in the country.

Shashank Singh, Partner and Head of India office at Apax Partners


Firstly, we were hopeful that the FM would get rid of retrospective taxation, which he has not done. Secondly, there should have been focus on taking the bitter medicine that is required in terms of fixing the fiscal deficit. Thirdly, he needed to start taking steps in implementing a rationalised taxation regime including GST. Fourthly, we were hopeful that he would focus on infrastructure and that includes paving the way for removing bottlenecks and giving clearance, and would announce some potentially good schemes. Lastly, to be bold in terms of taking steps around long-term fixes that is needed in this country such as reforming labour laws, land acquisition rules, environmental laws, etc. I think the Union Budget has addressed some of these issues, and we await details on the rest.

FDI is not such a major issue. The main reason the country’s growth reduced over the last two-three years was because private sector investments came to a grinding halt and not because of the rules around FDI. This had a negative impact on the sentiment, consumer demand, auto demand and white goods, among others. People started to question the logic behind investing, when the scams, lack of clearances and other such issues came out. Until you get to the root causes of that, you are doing the country a disservice.

JM Trivedi, Partner & Head, South Asia at Actis


Anything which is good for the economy and growth is good for private equity industry. I think it is a reasonably good Budget. Fiscal consolidation is good in medium to long term for the economy. I think the key is execution. A lot depends on execution and if they come out well then it will be great. One has to read the fine print but the immediate reaction is positive. They (government) have said that they will not ordinarily introduce any retrospective changes. This clearly establishes that the intention is not to do that. What they haven’t done is do away with the changes made earlier and one needs to see how they handle the ongoing negotiations on litigations. I think international investors would closely watch that. So, I think what they are not going to do in future is pretty clear. In terms of whether they could have changed the law, I think, international investors would have liked that but I am sure the government has lot of concern due to ongoing litigation. One will have to wait and watch how they handle it.

They have set the direction which is a positive thing for infrastructure. Now, one will have to see how the actual execution gets delivered.

Satish Mandhana, Managing Partner and Chief Investment Officer of IDFC Alternatives


I have a very positive reaction with respect to the pass-through status for the REIT and the Infrastructure Invest Trust and with respect to some of the announcements around the promotion of renewable energy sector. But I am very disappointed with the fact that the 

pass-through status has not been granted to the AIFs. The industry has been demanding a pass-through status which is more of an administrative issue from the tax department. By providing a pass-through status, you could have provided convenience in capital being pooled in India or outside and hence, while he (finance minister) has shown all positive measures in bringing capital back and bringing fund managers back to India by clarifying that business income is not capital gains income, a pass-through was equally important.

Retrospective taxation issues will be passed through certain committees; this can create some confusion. But the positive thing is that they have strengthened the advance ruling set up mechanism.


Amit Gupta, Partner and Chief Operating Officer, NewQuest Capital

It is a pretty practical Budget where they have not gone overboard in announcing sops or being populist. At the same time, they have set the right tone for some issues which were a concern for PE players like us. Saying that retrospective taxation issues will undergo through CBDT and other such committee, kind of concerns us. While there is some positive news, this also means that international investors get concerned over delays in approvals, etc. The concern is that it should not become another bureaucratic chain.

While the fiscal deficit target has been set, none of the subsidies has been reduced. The good part is that they have not been increased but yet to see the details and figure out whether those fiscal deficit targets are achievable.  

Infrastructure push was a pretty positive movement in terms of policy and hopefully we should see the policy convert into some real measures soon. It is overall a very prudent Budget; they could have done little bit more. The expectations were higher but given the current situation of the Indian economy, it was a prudent Budget.

Darius Pandole, Partner, New Silk Route

I am heartened to see that the Union Budget announced by Finance Minister Arun Jaitley took steps to strengthen investor confidence, improve the fiscal situation and boost overall growth. Given the current economic scenario, the finance minister presented a pragmatic Budget that aims for long-term growth.

The Budget aims for equitable and sustainable economic growth catalysed by the growth of key sectors. The commitment to create a conducive environment for venture capital and keeping the economy open to foreign inflows will definitely strike a chord with investors. Addressing the hurdles faced by the investor community will ensure that doing business in India is considered easy, friendly and mutually beneficial. A revival in investment activity is indispensable to inject growth as well as bring down inflation in a sustained manner.

Overall, the Union Budget is well-balanced and proactive. I am eager to see the government deliver on the measures outlined to usher in a return to higher growth for the economy.

S Harikrishnan, Managing Director, Avigo Capital

The only thing which is of concern is on retrospective taxation. Many investors wanted it to be removed but whatever cases are there have been continued. If they really wanted to move on the FDI in defence and insurance, then they should have been moved to 51 per cent. Currently, 26 per cent is already allowed in insurance which can now be increased to 49 per cent. But this will only bring in money and not make any substantial change for the investor. If you bring in controlling stake, only then will global companies take a serious look at Indian companies.

(Edited by Joby Puthuparampil Johnson)

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