Plan panel favours tax sops for angel investors

NEW DELHI: A Planning Commission panel has backed tax sops for angel investors and has mooted creation of a $1 billion ‘fund of funds’ and a National Entrepreneurship Mission to promote entrepreneurship in the country. The panel headed by former revenue secretary Sunil Mitra has also recommended allowing greater flow of insurance and pension capital into early stage venture capital funds.

The sector would require Rs 3 lakh crore of strong capital flows in entrepreneurial ventures with more than half in form of debt to fund entreprenurship, the panel has said adding that RBI, the finance ministry and corporate affairs ministry should allow overseas and domestic members of recognised angel groups to create intermediate structures such as Limited Liability Partnerships with a tax pass through.

The department of industrial policy and promotion should look at opening the doors for investment by non-resident Indians in early stage venture capital funds on the automatic route. The Commission's Deputy Chairman Montek Singh Ahluwalia has said the findings of the report will be appropriately reflected in the 12th Five Year Plan (2012-17) document, a plan panel statement said.

The panel gave a presentation on its recommendations to finance minister P Chidambaram and Ahluwalia on Monday. According to the expert group, VC investments have the capacity to generate Rs 10 lakh crore revenue and create 4 crore jobs in the next decade.

"Boosting VCI can result in creating 2,500 successful high growth ventures and can repeat success of IT/BPO sector in three or four other industries in the next 10 years," the panel said. But, the country faced significant roadblocks that held back and dampened entrepreneurial activity. "The country ranks low on comparative ratings across enterpresneurship, innovation and ease of doing business," it said adding that Indian angels constrained by regulations invested just Rs 100 crore in around 50 deals in 2011.

It has identified a five-pronged strategy to overcome these hurdles and to create a vibrant entrepreneurial ecosystem. The measures include putting in place a catalytic government policy and regulatory framework, easier access to equity capital and debt, greater engagement of established businesses with emerging ventures, institutions to encourage enterpreneurship and adequate and effective collaboration fora.

To develop a clearly defined plan of action, the panel has said the proposed National Entrepreneurship Mission will engage with key stakeholders including venture capital funds, financial institutions, educators, entrepreneurs, industry bodies, finance ministry and other government departments and financial sector regulators and will act as a nodal point for an Entrepreneurship movement in India and develop a clearly defined plan of action.