Does Indian Govt hate VCs and Entrepreneurs?
February 28, 2007 | In: Uncategorized
Does the present Congress led govt has something against entrepreneurs ?? If one goes by the series of events has they have unfolded in past 2 years then it does look like that Govt is not very fond of venture funds and entrepreneurs.
Earlier the Govt. increased service tax rate to 12% and brought small services like website advertising, hosting etc under service tax bracket.
Then later on RBI ( Reserve bank of India) removed priority sector status to Venture Capital Industry and further increased the risk capital allocation to 150% for banks investing in venture capital. The moves immediately dried up the availability of capital from Indian Banking sector to Venture capital industry.
Now in a further move to limit access of capital to venture fund, in Union Budget 2007-08, Govt has restricted benefit of “Pass-through Benefits” available to Venture funds to certain sectors only.
Excerpts from the speech of Mr P. Chidambaram, FM India
173. Venture capital funds are a useful source of risk capital, especially for start-up ventures in the knowledge-intensive sectors. Since such funds enjoy a pass-through status, it is necessary to limit the tax benefit to investments made in truly deserving sectors. Accordingly, I propose to grant pass-through status to venture capital funds only in respect of investments in venture capital undertakings in biotechnology; information technology relating to hardware and software development; nanotechnology; seed research and development; research and development of new chemical entities in the pharmaceutical sector; dairy industry; poultry industry; and production of bio-fuels. In order to promote business tourism, I also propose to allow this benefit to venture capital funds that invest in hotel-cum-convention centres of a certain description and size.”
Now probably we know why India has only a small no of successful entrepreneurs compared to US and why there are not more startups coming up ??
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