Towards a friendly taxation regime

We ostensibly broke away from Licence Raj in 1991... but the break was only partial. It was partial because who would be funded, there was an invisible role of the state, control over land, permissions, foreign investment proposals, environmental clearances, and of course, till the political nods came, to venture into newer areas which involved a lot of capital or energy going into it, an entrepreneur was reluctant.

Our effort over the last few years has been to restrict the role of the state, essentially as a facilitator or in the policy domain. When Prime Minister Narendra Modi was voted to power in 2014, if I look back at the changes and the direction of the changes in which we have moved, I think some of them are extremely significant. I find that the traffic of industry visiting North Block has almost ended. There are no files of FIPB (Foreign Investment Promotion Board) clearances, which are pending. There are no files that have to be pushed. Amitabh (Kant) is being called repeatedly an evangelist because the DIPP (Department of Industrial Policy and Promotion) was the corridor that most people visited to have their proposals supported by the government.
 

Its role is now one of a campaigner, its role is now one of an enabler. And I think these are extremely important changes, which have taken place. What is then going to be the key difference once this start-up movement picks up - it's going to be the eventual freedom from the state that the Indian entrepreneurship will now enjoy. It will only be a limited support of the state, in terms of its programmes so there is an easier availability of capital, there is a friendly tax regime which is available, and there is an unleashing of the energy of an Indian entrepreneur where he can use his technology, he can use his sense of innovation, he can use his enterprise, and then for him sky is the real limit.

And I think there is no other option or alternative that an overpopulated country like India has today. If you look at the direction in which the conventional global economy is moving today, we are almost moving from a crisis situation, literally by the day. Nobody really can envisage looking down the tunnel, what the situation of the world economy one or two years from now is going to be.

Nobody can seriously predict what the emerging challenges down the next few months are going to be. Earlier, challenges used to come, a crisis used to come, almost once in a decade. Today it may emerge even twice a day.

You may have the impact of the Chinese economy and their currency in one part of the world, and you will have the oil prices striking you in the other part of the world, and you may have the global impact simultaneously of these challenges.

Unquestionably, the global economy has slowed down; now we can take limited satisfaction, and I consciously use the word limited satisfaction, because even in a crisis-like situation in the world, we are growing much faster. The world almost universally recognises us as probably the fastest growing amongst the major economies but then we are not without our own challenges. We are fully conscious of the adverse situation in which we are struggling to keep respectable growth rates in the Indian economy.

We have certain advantages - we have a booming services sector, we have a manufacturing sector slowly growing, we have increased our public spending, we have opened our doors wide enough and foreign investment is coming in a big way. At least in the urban areas we can see an increase in demand.

And therefore these are the engines, which are keeping the growth rate alive. But at the same time, we also have challenges and if we recognise those challenges, a lot of our agricultural production which is rain dependent, private investment is slow, we have two weak seasons of monsoon, and as my colleague just mentioned, the government now has limited potential to create jobs within the government to sustain.

The private sector's own expansion itself is throwing up a challenge, because they have over-stressed themselves and their stress in turn gets reflected on our banking system. Something that the Reserve Bank of India and the government acting in tandem, are over the next few months, going to add to the bankers' ability to improve and be led in greater amounts; now it is under these circumstances that the government had to explore new areas.

And it is amongst those newer areas that we conceived of the Mudra scheme. Now the Mudra scheme that the government conceived of, is actually intended to target 25 per cent of the bottom part of India's population, so people get loans from these finance agencies, from public sector banks, private sector banks and other agencies.

Earlier they were being exploited by money lenders at very high rates, now they get into the banking reach, and I must say, the programme has been reasonably successful in the last four to five months, almost 1.73 crore entrepreneurs have availed of those loans. By the end of this financial year, the figure will be significantly higher. And seeing the success of the movement, we are going to roll out that programme year after year, and smaller entrepreneurs are being created by that process. On Independence Day, the PM had announced the Stand Up India scheme; the Stand Up India scheme will be separately launched.

It's the programme that envisages that women entrepreneurs, entrepreneurs belonging to the schedule castes and scheduled tribes - now these were segments that were not throwing up entrepreneurs - each bank branch, public sector or private sector, would actually adopt one in the scheduled tribe and scheduled caste category and one in the women's category.

So they will adopt two such entrepreneurs, and fund them to set up establishments. It could be a trading establishment, it could be a manufacturing establishment - and by this process at least, you can target amongst these segments that were not throwing up entrepreneurs, almost 300,000 entrepreneurs over the next one or two years, to be created. And then the prime minister's own idea and I must confess this was his original idea, that this is the world where start-ups need to be encouraged. Last year in the Budget, I had even suggested a start-up fund for helping the creation of start-ups. Needless to say, both the banking system and the government would make the resources available.

We have already worked upon an entrepreneur-friendly taxation regime; there are some steps that can be taken by notifications, which would be taken forthwith. Others require a legislative provision, which can only come as part of the finance bill when the next Budget is presented, in order to create a friendly taxation regime for start-ups.

Edited excerpts from Finance Minister Arun Jaitley's speech at the function to inaugurate Start Up India in New Delhi on January 16