By Manavjeet Singh
World Bank’s Doing Business 2015 data shows that India ranks 142nd in overall rankings, and ranks 158th in starting a business. We need proactive initiatives from Government to reduce and simplify various legal and other requirements in case of starting a business. Also compliance requirements need to be reduced and simplified so that entrepreneurs can focus on the core activities.
Government can ease out cash flow problems of start–ups by setting a threshold limit for TDS deduction. Payments to start–ups with revenues below the said threshold limits can be exempted from TDS. Similarly, if Government is able to exempt start–ups from charging Service Tax then it could help start–ups in reducing compliance costs. In countries like Singapore, companies are also taxed in progressive slabs with higher tax rates as the taxable income increases. In other words an individual and a company are treated at par when they are taxed. If similar benefit is extended to start–ups, it would give a fillip to newly formed business.
Biggest challenge that India faces is lack of proper enabling environment for start – ups. There is a lack of adequate number of incubators and accelerators in India and this segment requires immediate focus. The role of incubators and accelerators in guiding and mentoring entrepreneurs and providing them with various skill sets and support services is critical for success of start–ups. Many entrepreneurs face challenges in securing seed capital for their enterprise. Reasons for this are varied, including high risk and this asset class being completely different from equities. There is a need to attract more HNIs in this asset class by allowing some benefits. Also government can allocate some money from Consolidated Fund of India to invest in seed funds managed by professional investment managers, who in turn can support start–ups.
Banking - Housing Sector Loans
Housing is one of the largest employment generating sector. At the same time, home finance has becoming fastest growing and least risky segment for Banks and Financial Institutions. Real estate sector has been demanding increase in deductions under Section 24, and Section 80C. Currently deductions under Section 24 stands at Rs 2,00,000 and 80C stands at Rs 1,50,000. Additional tax benefit to first time buyers under section 80EE needs to be increased from current limit of Rs 1,00,000. This additional benefit is available to first time home buyers who buys a house property worth Rs. 40,00,000 or less. Taking cognizance of the fact that cement, steel, labour, and land prices have increased, value of affordable housing unit needs to be enhanced to Rs. 50,00,000 in metro cities and accordingly extended to first time buyers.
In India, middle class buys a home for self-occupation and we don’t see much of speculative buying of property backed by home loans borrowed by speculator investors. To provide an added security net to middle class borrowers, Government must deliberate on a Credit Guarantee Scheme for affordable housing.
With increasing land and construction costs, and increasing basic minimum requirements, increasing the size and value of affordable housing has been other long standing demand of housing industry. By considering construction finance to affordable housing as a priority sector lending; Government has reduced the interest burden of real estate developers which is eventually passed over to buyers. In interest of enabling large section of population buy their dream home in metro and non-metro cities, Government needs to increase the housing unit size to 60 sq mtrs carpet area and value of property to Rs 50 lakhs in case of metro cities and 30 lakhs in case of non–metro cities.
PM Modi’s “Make In India” mission faces only one challenge – skilled manpower. Today, India stands at a trajectory where it can reap demographic dividends by providing education to every citizen. While new educational institutions are being set up, we find a challenging situation where economically weaker sections and middle class is unable to afford higher education due to costs. There is an urgent need to make skilled manpower available by encouraging students to borrow education loans. Today, home loans are disbursed against guarantees of parents backed by their physical assets. This restricts the reach of education loans to well off families only. Government needs to deliberate upon methodologies to make education loans affordable. One such model can be creation of a refinancing body in lines with National Housing Bank and NABARD from whom banks and financial institutions can borrow money. Government also needs to create a Credit Guarantee Scheme to cover these loans, so that banks are able to extend credit facilities to financially weaker students desirous of pursuing higher education.
India also needs semi–skilled workers and people with vocational training. Today, industry faces serious challenges in getting such employees. It is also a known fact that not all students from economically weaker sections and lower middle class are able to pursue higher education. For such students, Government can announce a soft–loan scheme whereby students can pursue various vocational training courses and borrow from banks to pay the fees. This will help the country bridge the gap between demand for requisitely skilled and educated manpower and supply of such manpower through education loans at affordable rates.
Manavjeet Singh is Founder & MD, Bestdealfinance.com. The opinions expressed are his own.