The Hindu Business Line : <I>Investment climate looks positive </I>

Over the years,, more and more institutional investors have started believing that the Budget as a trigger for the market is becoming less and less important. This is in sharp contrast to what the situation was when I was a management student; when the courses in long-term corporate planning seemed so irrelevant and out of context, since Indian corporates lived by the Annual Budget and the Customs duty protections levied every year. There was an attempt at a "Long-term Fiscal Policy" by Mr V. P. Singh in 1985, when the Government, led by the ruling party stated that it intended to stick with its plan for a period of five years until the Indian democracy yielded to a coalition format of politics and policy determination.

The fact remains that liberalisation as a process is irreversible in terms of direction and we have all seen and reaped the benefits of the same, in the form of the car manufacturing licence policy and the telecom licensing policy, to name a few. But the pace of change leaves a lot to be desired, as it has been "frustratingly slow". The Budget announcements are now looked at for signals of the "pace" of change and addressing such macro-issues as allocation to the education and health-care sectors.

Given the current structure of the economy, where services constitute more than 50 per cent of GDP, which is also growing at a rate faster than the total economy, it is imperative and important that the right fillip is given to sustain growth while global opportunities exist! The one action necessary for this is to encourage investment and government allocation for education.

Tax breaks

The masterstroke of levying service taxes, conceived and executed by the Finance Minister over the last three years with an increasing list of services being brought into the net, has ensured that revenue collections are growing at a brisk pace and contributing substantially to revenues. There is scope and the need to judiciously consider breaks/exemptions in service taxes applicable to educational /vocational training enterprises to meet the growing manpower needs of the segments in these sectors through job creation/skill generation.

Another important aspect of income-tax is the possibility of treating capital gains earned from sale of securities to Qualified Institutional Buyers (QIBs), Foreign Venture Capital and Indian Venture Capital (duly registered with SEBI) on a par with the long-term capital gains from sale of securities on the stock exchanges. This will effectively mean that the long-term capital gain is not exempt from tax. This will go a long way in accomplishing the following:

Creating liquidity for entrepreneurs in young companies even as they continue to grow their businesses;

Attracting capital from foreign and Indian VCs, QIBs and assets in capital formation at the SME level;

Avoiding/deferring the listing of younger companies that are not yet ready to comply with the stringent regulations regarding disclosure, independent directors, and compliance costs. This will increase the quality of listed companies and reassure international investors.

There is no doubt that the investment climate in India is looking very positive at the moment. However, a few steps, like the above, need to be taken to sustain this momentum and make India the `destination of choice' on the global map.

(The author is Investment Partner, Baring Private Equity Partners, India.)