Every year, as the financial year comes to a close and the Union Budget is announced, expectations are built, fulfilled and failed. However, this year, though the tone of the budget remained largely the same, Finance Minister, P. Chidambaram, introduced a few schemes to foster the growth of the Indian entrepreneurship ecosystem, which came as a surprise and a relief to the community. Thus, this year, we bring to you snippets on what the budget has in store for you and what it means to the investor community and entrepreneurs in select sectors
TEAM SMART CEO
What’s in store for venture capital and angel investors?
Market regulator SEBI will prescribe requirements for ‘angel investor pools’ by which they can be recognised as Category I AIF (Alternative Investment Funds) venture capital funds and thereby, gain tax benefits. A category I AIF, set up as venture capital funds, will also be allowed a pass through status under Income-tax act. However, there is still no clarity on whether the category represents angel funds or angel investors or both.
Have the funding woes of SMEs and MSMEs been addressed?
Initial Public Offer (IPO) is not required for Startups and SMEs to list on the SME exchange, but the issue will be restricted to informed investors. This is in addition to the existing SME platform, in which listing can be done through an IPO and with wider investor participation.
Non-tax benefits enjoyed by micro, small and medium enterprises (MSME) will be extended for up to three years after they grow out of the category in which they obtained the benefit.
SIDBI’s refinancing capability has been enhanced from Rs 5,000 crore to Rs 10,000 crore per year, to support MSMEs.
Additional support of Rs 100 crore will be provided to SIDBI’s India Microfinance Equity Fund to provide equity and quasi-equity to Micro Finance Institutions (MFI).
What in it for student entrepreneurs?
Post the approval of the Ministry of Science and Technology or the Ministry of MSME (Micro and small medium enterprises), funds given by companies to technology incubators within academic institutions, will be considered as corporate social responsibility (CSR) expenditure. This move will increase the funds allocated to improve operations of an incubator. Hopefully, India Inc. will oblige.
What the budget has in store for;
- Ministry of Health and Family Welfare allocation: Rs. 37,330 crore. This is an increase of 49 per cent from the FY12 number. Originally, a 32 per cent increase was estimated.
- Medical education and research allocation: Rs 4,727 crore
- Department of Ayush allocation: Rs. 1, 069
- Six AIIMS-like medical college expansion: Rs. 1, 650 crore
- Department of Ayurveda, Siddha, Unani, Homeopathy allocation: Rs. 169 crore
- The Rashtriya Swasthya Bima Yojana scheme will be extended to rickshaw, auto-rickshaw and taxi drivers, sanitation workers, rag pickers and mine workers.
- Rs. 65, 877 crore (17 per cent) increase in budgetary allocation to Ministry of HRD.
- Sarva Shiksha Abhiyan allocation: Rs.27, 258 crore.
- Rashtriya Madhyamik Shiksha Abhiyan allocation: Rs. 3,983 crore Rs.5284 crore
- Scholarship and other scheme upgrading allocation: Rs. 5, 284 crore
- Target of skilling 50 million people in the 12th Plan period, including 9 million in 2013-14.
- Service tax exemption will be granted for institutes offering vocational courses.
- If these investments have to pay-off, entrepreneurs have to step in and grab business from these opportunities.
- Capital infusion of Rs.14000 crore in public sector banks to help them achieve Base III capital adequacy levels.
- Affordable Housing sector will receive a boost on account of the additional deduction on interest on housing loans up to Rs. 25,00,000 in addition to the deduction of Rs.1,50,000 under Section 24 Income Tax Act.
- Simplification of branch opening processes for insurance companies, in Tier II and smaller cities, with no prior approvals from IRDA
- Multiple approaches will be adopted to increase penetration of insurance. There will be a push to increase insurance penetration by establishing one office of any public sector life or general insurer in every town with population greater than 10,000. Moreover, KYC (Know your customer) of banks will be sufficient to acquire insurance policies, banks will be permitted to act as insurance brokers, and banking correspondents will be allowed to sell micro-insurance products.
- Measures to improve access and simplify processes for several segments of capital market have been proposed. This covers the debt segment, FIIs, angel investor funds and mutual fund distributors.
- List of eligible securities where Pension Funds and Provident Funds may invest, will include, exchange traded funds, debt mutual funds and asset backed securities.
- Infrastructure funding segment of financial sector has been further encouraged with Rs. 50,000 crore tax free bonds allowed to be issued.
- SIDBI’s India Microfinance Equity Fund will get further Rs. 100 crore support over the existing committed support of Rs. 107 crore that had benefitted 37 MFIs.
- Establishment of India’s first Women’s Bank, which will largely lend to women entrepreneurs and employ mostly women. The Government will provide Rs 1,000 crore as initial capital and hope to obtain the necessary approvals and the banking licence by October 2013.
Clean technology entrepreneurs
- Reintroduction of ‘generation-based incentive’ for wind energy projects. A provision of Rs 800 crore will be made to the Ministry of Non Renewable Energy for the purpose.
- Government will provide a five-year scheme of low interest bearing funds from the National Clean Energy Fund (NCEF) to IREDA to on-lend to viable renewable energy projects.
- Support to municipalities that will implement waste-to-energy projects through different instruments such as viability gap funding, repayable grant and low cost capital.
Engineering and capital goods segment
Investment allowance for new high value investments. That is, a company investing over and above Rs.100 crore in plant machinery during the FY14-15 is entitled to deduct an investment allowance of 15 per cent of the investment. This will be in addition to the current rates of depreciation.