Expectations from Union Budget 2016

Abhirup Lahiri

Swati SinghVipul

Sharma

ChanakyaCase Submission

Indian Institute of Foreign Trade | Delhi

Infrastructure

Ease of Doing Business

Start-up funding

The Selected Three

The Selected three

This slide gives us an overview of the selected three categories and reasons for choosing them

Infrastructure : corner stone of India’s growth story

• Infra accounts for 31.2% of our GDP• It must be realized that 68% of India's national income (in FY '16) is contingent on 35% of stalled projects

ranging from aviation to roadways to real estate• As government takes upon measures to cut red-tape, we must closely analyze how is India faring in making

businesses (both core and service sector) achieve the goal of robust infrastructure for India's ever burgeoning population

Start Up Funding: aiding the process of setting up business

• As we wish to cater to the large demographic of age 25-40 years, we must build the entrepreneurial streak in making our youth self-sustainable

• India boasts of 10,11,05,987 start ups as of 2015. Every day 10,000+ start ups are created to make India's dream the new ‘American Dream’. Again, role of ease of doing business is paramount to achieve this end

Ease of Doing Business: providing the right environment

• As we wish to cater to the large demographic of age 25-40 years, we must build the entrepreneurial streak in making our youth self-sustainable.

• India boasts of 10,11,05,987 start ups as of 2015. Every day 10,000+ start ups are created to make India's dream the new "American Dream". Again, role of ease of doing business is paramount to achieve this end

Thus a robust infra boosted by a transparent system will foster the right environment for investors to pump in money for start ups in India. We endeavor to analyze these three factors in detail in the coming slides.


InFRASTRUCTURE (1/2)

Policy changes in the previous budget1. A significant increase of Rs.70,000 crore in investment in infrastructure in 2015-16 over the current year, with a focus on railways and roads.2. National Investment and Infrastructure Fund will find monies to ensure an annual flow of Rs.20,000 crore to it.3. Issuing tax-free bonds for raising funds for investment in rail, roads and irrigation4. Public Contracts (Resolution of Disputes) Bill to streamline the institutional arrangement for the resolution of disputes that have stalled projects5. The budget proposed to take measures to deepen the bond market to promote investment by a Public Debt Management Agency (PDMA)

Achievements Failures

• Mudra Bank expected to have given advances to the tune of Rs. 1.2 Lakh Crore by the end of this fiscal year

• Signing up of multi-billion dollar infrastructure projects with China and Japan

• 304 projects still stalled with the Project Management Group of the PM's Cabinet Secretariat

• NPAs of Rs. 12.8 Lakh Crore generated through stalled infrastructure projects

Analyzing the scenario until nowInfrastructure is highly responsible for propelling India’s overall development and enjoys intense focus from Government for initiating policies. The Ministry of Road Transport outlined plans for $120 billion worth of road-widening projects, with 65% of this money coming from the private sector. There are also plans for $60 billion to be invested in India’s ports. The strong position makes infrastructure a crucial sector the Union Budget of 2016.

Infrastructure


Start-up funding

The Selected Three

This slide gives us current scenario, changes made in the previous budget and its achievements/failures in infrastructure


InFRASTRUCTURE (2/2)

Infrastructure


Start-up funding

The Selected Three

Regulatory reforms to expedite execution and financing of infrastructure projects

1

Recommendation Implication

Raise Public Spending through PPP model• Brown-field modernization of railway stations

through Public Private Partnership• Modernization of ports and setting up of

automated cargo handling terminals through PPP

• Will help sustain growth in core manufacturing sectors where growth has dipped by 4.6% which amounts to a loss of Rs. 56,000 cr. to the national coffers.

• Reassure the strength of PPP projects through concerted effors as recommended by Kelkar Committee.

2Standardizations of labor contracts

• Bring parity in the definition and valuation technique of works contracts under the Service Tax Law and the VAT Law. Currently VAT

• Avoiding double taxation in VAT-applicable states. Taxation on receipt of advances leads to payment of Service Tax as well as VAT with a double taxation of up to 140%. This is a major additional expense in infrastructure projects.

3• Banks face trouble meeting short term investment demands

as most of their funds are stuck in long-term loans given for infrastructure.

• Infrastructure companies could issue bonds to make money for investments and the Government could earn through municipal bonds for funding infrastructure projects

Revolutionizing Bond Market• Create a national financial intermediary to issue

municipal bonds on behalf of its members• Creation of bond index to track corporate bonds

and deepen investor’s trust.


EASE OF DOING BUSINESS (1/2)

This slide gives us current scenario, changes made in the previous budget and its achievements/failures in ease of doing business


Analyzing the scenario until now

With an aggressive push towards the 'Make in India' initiative, increase in FDI caps in various industrial sectors and efforts towards expediting foreign investment, the Government has made 'ease of doing business' a crucial parameter for the success of its initiatives. However, ranked 130 in the world, India has a long way to go before it can boast of a strong ecosystem of convenience for businessmen.

Policy changes in the previous budget1. The application for Industrial License ("IL") and Industrial Entrepreneur Memorandum ("IEM") can be made online. 2. The country also figures among those that simplified preregistration and registration formalities such as publication, inspection among others.3. India eliminated the paid-in minimum capital requirement to start a business and also streamlined the processes to start up.4. Put in place an investor-friendly policy, under which FDI, up to 100%, is permitted, under the automatic route, in sectors like railways and healthcare.

Mr Jaitely's attempts to improve the ease of doing business have yielded good result with the country jumping 12 ranks to 130 in the latest ranking compiled by the World Bank.

• Red-tapism is still rampant in government institutions and fixing accountability seems a long haul even now.

• India still ranks below the likes of Bhutan and other LDCs in "spurious audits" of its registered companies and thus leading rampant development of NPAs in these firms.

Infrastructure


Start-up funding

The Selected Three


Infrastructure


Start-up funding

The Selected Three

Cutting down the red tape by making bureaucracy accountable and increased use of PPP

Expediting registering/completion process • Online issuing: building plan and completion certificates• Empowering Architects, Engineers and Surveyors

empaneled by Development Authorities to issue the building permits/completion certificate remotely.

• Outsourcing registration procedures to private sector• Creation of a special cell for handling clearances

• Among the various parameters in the 'Ease of Doing Business Index', dealing with construction permits is India's weakest link. Reforms would significantly improve India's ease of doing business

1


Unclogging complicated tax meshIntroducing a sunset clause on corporate tax exemptions:Phase 1: Exemptions which are not needed any more will be removedPhase 2: all open-ended exemptions would be given sunset datesPhase3: Rationalization of exemptions given for capita-linked expenditure and R&D Phase 4: Rationalization of accelerated depreciation

• Expedite the process of corporate tax cut from 30% to 25% in 4 years, as announced last year

• Free up revenues by reducing amounts of foregone profit• Help remove the tarnish on India's image of having high

corporate tax and thereby sentiment regarding ease of doing business

2

• It takes over 4 years to enforce a contract in India and this is an extremely weak spot for ease of doing business.

• Quicker settlement and streamlining of arbitration processes will help businesses clear litigation faster and expedite their growth path.

3

EASE OF DOING BUSINESS (2/2)

Fast Arbitration Setting up of special courts for settlement through arbitration in a time-bound manner in line with the recommendations of the Arbitration and Counciliation Amendment Bill.


START-UP FUNDING (1/2)

This slide gives us current scenario, changes made in the previous budget and its achievements/failures in start-up funding


Analyzing the scenario until nowRightfully christened 'Startup India StandUp India', the Government is pushing job creation by leveraging the startup landscape in the country. With the introduction of new microfinance institutions, credit guarantee schemes and pools of funds, the Government is making concerted efforts towards developing India's very own Silicon Valley. This, along with the strong demographic dividend of a population below the age of 35 calls for exciting developments in the field of startups in India

Policy changes in the previous budget

1. Creation of Micro Units Development Refinance Agency (MUDRA) Bank, with a corpus of Rs.20,000 crores.

2. Credit guarantee corpus of Rs.3,000 crores.

3. Corporate tax reduction from 30% to 25% over 4 years.

4. Allocation of Rs. 1,000 crores for setup of the ‘Self Employment and Talent Utilization’ program to incubate startups.

• $7.3 billion was invested in startups in the first 3 quarters of 2015

• Number of startups who received funding doubled to 400 in 2015.

• Average weekly startup funding of $95 million

• A company takes a minimum of 29 days to start up, not competitive viz-a-viz most of the high-growth countries

• Companies with limited access to angel or VC funding• Exit policies are very cumbersome and hence re-

investment in a new business is tough for a failing startup

Infrastructure


Start-up funding

The Selected Three

Thank You!

Start-up funding (2/2)

Infrastructure


Start-up funding

The Selected Three

Regulatory reforms to expedite execution and financing of infrastructure projects

1


• Rs. 10,000 cr corpus assigned to help start-ups should be managed by professional fund managers and not politicians.

• Selection of such fund managers should be on basis of proven track record.

2Straightening out policies and tax regimes

• Removal of angel tax (currently at 33%)• Service tax holiday for 3 years• Lay down a road map for list of reforms under the

'Startup India Standup India' initiative.

• Will pump up forex reserves as foreign angel investors will have added incentive to invest. (and will not divert to Singapore/UK)

• Permanent establishments will rise and will offset any revenue lost due to forgone ‘angel tax’.

• Would reduce the biggest burden on the funds that a startup has, in its initial stages (with zero or minimal profit)

3 • Create an innovative financial instrument which bridges investors’ risk appetite with the impending need for startup funding

• This will be analogous to mutual funds in investors’ parlance

Streamlining ‘Fund of Funds’ initiative • Will inject much needed expertise and professionalism• Corruption levels stand to dip considerably as there would little

to no vested interests of hired professionals. • Reduces the hold of institutional investors on the profit

objectives of the startup as the Governmental scheme brings along with it, a sense of social security as well

Crowd-sourcing of start up funds• There will be significant hedging of startup risk through

diversification.• It will help cast a wider net in roping in investors to the

upcoming sphere of startups.

Expectations from Union Budget 2016

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