FM's clarion call to 'Focus on the outcome, not the outlay' and the challenge of access to capital

FM Sitharaman Budget 2024

The vote on account saw Finance Minister Nirmala Sitharaman reiterate the strides made by government policies over many years with a commitment to do more. The government had committed to equipping the finance industry to meet India’s investment needs. The extension of the existing tax benefits adheres to the spirit of a vote on account. Directional articulation of the startup and investment policies will emerge closer to the election.

Unlocking capital blockages is essential to ensuring equal access to the India investment story. Recent changes in  the regulatory frameworks such as restrictions on regulated financial entities’ exposure to Indian alternatives have impacted perception and access to capital. Friction created for foreign investors investing in Indian startups have shown effect. Clarity is of the essence for capital allocation to fuel new asset creation.

An interesting phrase used in the speech was “focus on the outcome, not the outlay “. The government has made tremendous strides in increasing market sizes and capacity across many areas. A review of the existing frameworks was announced last year and this will no doubt inform the policy of the incoming administration. The emphasis on growth will underscore the review and rewriting. The greatest capacity unlocking will happen through increasing access.

Private sector innovation in sunrise sectors will be greatly facilitated by allowing them greater access to grants in diverse forms. Private sector research requires long term patient capital. Funding models for this such as permanent capital vehicles have been established around the world. Innovation ecosystems require such frameworks in order to be able to invest resources.

The Rs 1 lakh crore corpus must have a wide scope for research on emerging and frontier technology. India’s lean innovation model and emphasis on digital public infrastructure has created a pipeline for digital distribution the likes the world has not seen.

The Indian startup ecosystem continues to be an effective vehicle for agricultural innovation, market access and capacity augmentation. The next iteration of Startup India must concentrate on such sectors with greater access to capital sources and increased operational flexibility. Global norms help create global outcomes.

There is an impressive quantum of capital waiting on the sidelines to invest in the Indian opportunity. The internationalisation of Indian equities has become a strong attractor for many startups to return to India. A clear regulatory framework must be actioned soon to create a strong flywheel for onshoring of Indian innovation.

Measures to extend existing innovation schemes must be followed with measures to rework them with the participation of the industry. Sectors have become nuanced yet deeply interconnected with unintended consequences causing permanent scars. This interconnectedness is a feature of a maturing economy and must be accounted for in such decisions.

A vote on account is more often a reflection of previous changes. The upcoming manifestos will highlight the direction India will take through the next incoming administration. Capital allocation will follow clarity on this score. 2024 is when a majority of the democratic world is seeing elections, heightening continuity risks for investment decisions. The upcoming budget in June will set the tone for the next few years. The manifestos shall, as always, remain a prelude.

Siddarth Pai is Founding Partner, 3one4 Capital. Views are personal, and do not represent the stand of this publication.