'Jaitley's Budget is no different from the UPA's'

Modi government's first Budget has evoked mixed reactions from Silicon Valley. While some investors state the Budget has failed to live up to their expectations, others say the Budget sends out the right signals to revive growth.

Kanwal Rekhi, Managing Director, US-India Venture Investor since 1994 told Rediff.com, "I am very disappointed that this budget did not make a Ronald Reagan or Margaret Thatcher style change from the past. It is missed opportunity to cast India in fundamentally different direction.”

Rekhi, the first Indo-American CEO to take a venture-backed company public on the National Association of Securities Dealers Automated Quotations (Nasdaq) had high hopes since the new government was formed.

"I don't understand the hesitation. They had raised expectations but have not fully followed it. Clarity on tax laws, retroactive taxes, GAAR (General Anti Avoidance Rules) are the areas where he should have brought instant clarity."

 Arun Jaitley's lame excuse of being on the job for only 45 days does not hold water, he said. “Prime Minister Narendra Modi campaigned for a year promising a new direction, implying very clearly that he had thought through what was needed. That was the whole basis of his election".

In the first maiden budget the Modi government did not give clear picture on retroactive tax, but said, "A high-level committee will scrutinise retrospective tax cases."

Raju Reddy, Industry Advisor, entrepreneur and venture capitalist, who has invested in many India-based companies echoed Rekhi’s sentiments saying they expected more sops for foreign investors and expected the finance minister to take measures on retrospective tax. But they did not change anything. 

They announced smart city and infrastructure projects, initiatives to clean the Ganga river, which are good but "it is no different from the UPA government’s budget”.

"I would say they missed the fantastic opportunity to come out strong and show signs of promoting foreign investment," Reddy told Rediff.com. If you look at any acquisition of a company in India, foreign companies do not know how to deal with the retrospective tax. 

What if the law changes five years from now? So this has created uncertainty which hampers business deals. Investors have many choices, so these measures will not make India an attractive destination to invest,” Reddy said.

He said, "Even a change in foreign direct investment in the defence sector from 26 to 49 percent is a meaningless change. How does it matter unless they hike it to 51 percent? So there is no additional per se for investors."

“We are wondering why the Modi government’s Budget lacked boldness. They signaled growth and investors expected this government is much more focused on development and creating jobs. But to attract investors, the government needs clarity and bold reform," Reddy said.

Ravi Ramamurti, Professor of International Business and Strategy and Director, Center for Emerging Markets at NortheasternUniversity, Boston, Massachusetts, commenting on the Budget said, "The Budget was bound to disappoint, given how high our expectations were."

He said that it has few bold strokes. The government was boxed in politically, by the impending state elections, and financially, by the momentum of the previous government’s commitments.

Ramamurti said, "I don’t think lack of time to prepare the budget was a problem. Even if Jaitley had two more months, he would still be boxed in politically and financially."

Sharing his views on FDI in defence that will have Rs 2.29 trillion in 2014-15, Ramamurti said that there are overtures to foreign companies that may draw in more FDI. "Its unfortunate that India has to spend so much on defence and that we have to look at defence to bring in more FDI. I'd rather want India to get more FDI in low- or mid-tech manufacturing, where China's declining competiveness could be our windfall, and many more jobs could be created quickly."

He added that the best way to attract more FDI is to restore India’s growth to 7-8 per cent as the FM has proposed. A country of India's size and complexity cannot be turned around by a single Budget. But I am confident that over time the Modi government will fix structural problems in the budget. Faster growth will increase government revenues and make it easier to cut expenses, such as subsidies, or fix labour laws, he explained.

However, Venktesh Shukla, President, The IndUS Entrepreneurs (TiE) Silicon Valley said, "The Budget need not be foreign investment friendly but it needs to be investment friendly. Whether the investor is local or foreign should not matter but the investment climate needs to be investor friendly - that includes the set of relevance laws, policies, and the overall governance.”

He said, the last few years were not investor friendly - regressive tax laws, inability to make decisions compounded by the inability to execute decisions already made and the overall perception of governance being adrift all added together to create an overall climate of hostility to investment.

Stating that this government is sending all the right signals, Venktesh Shukla says, people need to pay for the services they use and the subsidy culture has to go away. Opening up defence to FDI, focus on skill development of youth, reduction of deficit, streamlined and uniform GST throughout India, emphasis on building infrastructure of railways, roads, ports, airports etc through public private partnership are all steps in the right direction. 

He agreed that there are no big bang reforms but there are incremental changes in the right direction combined with overall confidence that this government is sensitive to the need to grow investment many fold will do the trick. "The challenge is execution and verdict on that will only come with time," said Shukla.

Vish Mishra, Venture Director at Clearstone Venture Partners, reacting to the $300 billion maiden Budget told Rediff.com that it is a good Budget that funds infrastructure and encourages more investments in education, sanitation, energy and digitising India. It promises ease of doing business in India for entrepreneurs and establish businesses. It lowered taxes and promises interest deductions for homeowners.

However, "It is not as ambitious in revenue generation, especially via divestiture s of public sector industries via privatisations," said Mishra. On the whole, he sounded hopeful that these are steps in the right direction to revive the economy, make India safe for women and children as well.

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