Private capital needs to be made to work harder and create meaningful assets for the country.
The startup ecosystem has grown tremendously in the past few years. However, if one peels the layers, one notices an anomaly. Private capital naturally flows into sectors where big payouts are possible, even if highly risky, or where returns can be captured fast. This has resulted in considerable capital inflows into frothy sectors such as gaming, crypto, stock trading, and the like. Even in relatively deeper sectors such as food, the capital that has flowed into high-speed last-mile delivery is an order of magnitude greater than what has gone into food logistics/supply chain. It has now become critical to ensure that private capital (both domestic and international) flows into sectors of national importance. Private capital needs to be made to work harder and create meaningful assets for the country. Given this, the time has come for the Government to put its thumb on the scale, by incentivising private capital to flow into sectors of national importance such as food and Agri, healthcare, and education, and if required, disincentivising its flow into sin sectors/frothy sectors.
There have been requests to rationalise long term capital gains tax by private equity investors. This provides one opportunity for the government to send the right signals – e.g., differentiated LTCG Tax for sectors of national importance vs the others. Direction of India’s infrastructure investment funds to expand their horizons beyond hard infrastructure investments alone, and into technology investments related to the infrastructure sectors e.g. logistics and supply chains, health tech and edtech, as well as creation of new government vehicles (e.g. sovereign wealth funds, AIFs) directed towards these spaces will be another welcome measure. These, coupled with capital gains tax breaks for such vehicles, will help accelerate equity investments into sectors such as these.
Encouraging domestic capital inflows into sectors of national importance:
In addition to the above, it is important to encourage the flow of domestic capital into sectors of national importance. Domestic capital has been relatively risked averse. Given this, incentivising them to place calculated bets on sectors such as these will accelerate development of these sectors, while also providing better returns to investors, and ensuring that the ownership of these assets is more domestic than global. Creative means may be explored for this. For e.g., if the mandatory CSR program for corporates can be modified to treat investments into AIFs focussed on sectors such as food, education and healthcare, as deemed CSR, this will make CSR funds work harder and more efficiently, and also provide the possibility of an upside to company treasuries, rather than being dissolved as a grant.
Single window for access to schemes and subsidies:
Today, central and state governments offer a range of schemes and subsidies. However, navigating to these subsidies is non-trivial for companies. A single window portal that enables access to these will help companies take advantage of schemes better and achieve the objective of these schemes.