Budget 2024 a bold fillip to Atmanirbharta of private capital

Budget 2024

Today has been a remarkable day for the private capital industry. The entire private capital industry has glimpsed what Lord Rama must have felt after Vanvaas, we have endured a 14-year journey to get here! The angels in this narrative are none other than the Ministry of Finance and the Finance Minister Nirmala Sitharaman, whose recent reforms emphasize the critical role our industry will play in India's quest for a Viksit Bharat.

The VC/PE asset class has provided over Rs 31 Tn in risk capital in the last decade. This asset class has a multiplier effect: through capital formation, innovation and employment generation. This long-term capital has created Rs 100 Tn in revenue, 10.5 Mn jobs, and enabled Rs 22 Tn in taxes.

The domestic capital scarcity in this industry is evident from the recent data published by SEBI: In 2023, 70% of the Rs 2.4 Tn in VC/PE investments came from overseas. The share of domestic and foreign capital is 50/50 and the domestic pool is only 1/10th of the equity MF pool.

The rationale for bringing parity between long-term capital gains tax (LTCG) for listed and unlisted securities is rooted in channelising domestic capital towards entrepreneurship. The burden on Indian investors willing to provide risk capital, needed easing. With the bunching of all financial assets with a uniform 12.5% LTCG, this disparity has finally ended. Earlier, the LTCG on unlisted investments was 20% (with indexation) which for a top-quartile performance fund which as per SEBI’s benchmarking data delivers 20% translates to ~15-16% effective tax rate. This has now been made 12.5% and the parity enables investors to make investment decisions solely based on merit.

As someone who frequently engages with startup founders, I can attest to the frustration surrounding Angel Tax. This rule was intended to prevent money laundering but often felt like a burden on entrepreneurship. The implementation created a perception that the government was unsupportive of startups, which contradicted its larger goal of promoting innovation. Today, with the abolition of Angel Tax, I believe we are turning a significant corner. This change not only brings the clarity and certainty, which the Hon FM laid out in her Budget speech, but also signals strong support to propel the startup ecosystem.

With the government’s backing, the private capital industry is poised for growth. Estimates indicate India will need Rs 50 Tn of private capital over the next 5 years, and I am confident domestic capital will rise to the occasion. What excites me most is the potential to channel the Rs 30-40 trillion pension pools in our country into private capital. If we can achieve this, India could become truly unstoppable. Today marks a bold step towards Atmanirbharta, and I’m eager to see India emerge as the global hub for private fund managers.