What PE fund managers & advisors expect from the Budget
Reuters | Photo Credit: Arun Jaitley

Private equity investors are hoping to hear the Finance Minister clear the air for good on vexatious taxation issues for foreign investors, unveil a road-map for goods & service tax (GST), kick-start investments especially in infrastructure and possibly even channel domestic financial institutions' money to Indian PE funds.

With the Union Budget just a few days away, PE investment fraternity is also keeping its fingers crossed that with one of their own in the Finance Ministry, the industry may also see a relief with tax pass-through status.

Notably, the state minister for finance Jayant Sinha, is a former VC fund manager, having led impact investment firm Omidyar's India unit before quitting to run and eventually win in the general election last year.

“Government should kick-start investment and growth in the economy and we are hoping for significant policy reforms on that and liberalisation in certain areas like GST and privatisation in certain sectors. Investment cycle has slowed down; government needs to gear it up. Clearances on the infrastructure side haven't happened at the pace it should have. Hence, we expect a high-impact budget,” says Niren Shah, managing director at Norwest Venture Partners India.

Fund managers are optimistic that the new government is keen on improving business sentiments further and expect the Budget to bring rationalisation and stability around taxation. This would be in line with what Finance Minister Arun Jaitley has already talked about in various forums and with the government's decision not to appeal further in the controversial tax claim against Vodafone.

Another big macroeconomic issue is implementation of GST. Although the government had recently tabled the constitutional amendment bill in the Lok Sabha for implementing GST, it is still sometime before it can be implemented.

“Big thing that people are expecting is a clear road-map on GST, clearance on taxation for foreign and domestic investors. There is a need for stability, predictability and reduced discretion. On the financial side, we can expect some fiscal room to improve things,” says Padmanabh Sinha, managing partner at Tata Opportunities Fund.

“Budget should be a good watershed event to see what progress has been made,” he added.

“The new government will need to balance the imperatives of encouraging domestic demand and stimulating growth, whilst keeping the fiscal deficit and inflation under control. Efforts are needed to make administrative and bureaucratic procedures time-bound and fast-tracked, so that new investments can be stimulated,” Darius Pandole, partner at New Silk Route Advisors, said.

He also stressed on increasing the availability of capital and reducing the cost of long term funding of infrastructure through appropriate fiscal incentives, and encouraging PPP models to improve on-ground project execution.

Others like Raja Lahiri, partner at consulting firm Grant Thornton India LLP, which works closely with PE firms, said one of the important things is to encourage and channel domestic institutional money as a source of capital for Indian PE funds.

“There is a need to encourage and enhance the participation of institutional investors like LIC, pension funds, etc in the Indian PE funds. One of the other areas that needs to be clarified and simplified is the issue of pass-through taxation status for the SEBI registered AIF structures. Bringing in clarity and certainly of tax is important area to consider, since the capital tapping potential from the Indian domestic institutions is massive and this should definitely be tapped,” he said.

Investment experts also believe that the government needs to fix the issue of participation in project financing.

“Government should step in with financing for infrastructure projects as private companies are stretched with debt,” said Vineet Toshniwal, managing director at boutique investment bank Equirus Capital.

(Edited by Joby Puthuparampil Johnson)

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