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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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2 Responses to Does Indian Govt hate VCs and Entrepreneurs?


Dharmendra Ajwani

April 20th, 2007 at 12:28 pm


Yes i agree with you. Its goverment that holds new firms to come up. In news and at conference they say they support new companies to get start up. Ask me i have a small company in Mumbai and i will tel you how difficuilt it is to get started.

As small company no one will help you. Their are so many liceneces and paper work that you will concentrate on your new company or run after Govt for different licences. stuff. Every thing is illgel. Only Govt sees is incometax. What Govt does for small companies that want to get started??? nothing but yes they are always ready to take their share in form of service tax and income tax and all other Tax.

I think the “Guru” film is on correct lines. If you want to grow do illgel stuff as if you want to go legal way you will never reach that high.


deepak tongaonkar

January 25th, 2011 at 11:27 pm

Dear Mr Ajwani,
Well. U r right upto a certain extent.there r n number of problems if u want to start a new venture.
Every human being wants to be big & in order to be big he has to compromise a lot.
But over the years I have experienced that business is always run on ethics & internet has made the world too small.To become big now we need to work as a team & when we people with the same dream,same thought process,same likings,same passion to work hard & hard & smart–we can do wonders.
We Indians r capable of doing anything,what we lack is the fair competition in the business.
Yes,as far as the Govt is concerned,we have to accept the system as it is as we cannot change the way it works but yes we can change ourselves.
Do u think i talk sense,I think I do sometimes.

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