Constant change in regulations is a pain for startup investors: Mimi Partha Sarathy

Even as the investment climate in India has improved over the last two years, the rapidly changing regulations continue to remain a challenge, and while the government embarks on framing a data protection regulation, investors should also worry about how the companies they invest in the deal with the data they collect, Mimi Partha Sarathy, founder and MD, Sinhasi Consultants, told Neha Alawadhi in an interview.

Sinhasi, founded in 2005, are personalised investment advisers, providing end-to-end financial advisory and planning services and distribution services. Edited excerpts: 

Q: Is the regulatory framework in India equipped to deal with the vast amounts of data that is being generated by startups different areas? As an investor, is that a good or bad thing for you?

A: Everything new will have its repercussions as well, but that doesn’t mean one should stop trying. Yes, there are problems in data security, like the one Zomato faced recently but they did their best to sort things out. Likewise, most of the startups must be using all the possible security measures to prevent data leak, and they also should keep checking for security gaps in their system, with a crisis management plan in place.

India is at a very vulnerable stage when it comes to cyber security. There are no dedicated laws for digital payments. As per ASSOCHAM (Associated Chambers of Commerce and Industry of India), India is already seeing a steep increase in cyber crime. There is a need for a strong law to deal with data protection, storage and transmission.

As an investor, one should be careful while investing in these companies and should carefully evaluate the measures that company is taking to put data security in place.

Q: How has the investment climate in India changed in the past two years? 

A: Over the past two years, the investment environment has changed drastically. Foreign Direct Inflow in India has witnessed a hefty increase of over 30-40 percent.

In the financial year 2016-17, India received an inflow of USD 60.08 billion. If we talk about our domestic markets, equity mutual funds are consistently receiving higher inflows over the past one year.

The mutual fund industry assets under management has grown from Rs 5.87 trillion in the year 2012 to Rs 18.96 trillion as on June 2017. There are lots of startups coming up in the country and getting funded from the private players. All these positive indicators definitely mean good for the investment scenario in India with regards to the growth.

Q: How is GST likely to affect startups? Apart from building solutions, how does it affect the taxes that startups have to pay?

A: Startups are more excited for GST as it brings ease of doing business. Earlier, startups which were operating in multiple cities had to adhere to every state rule in a different manner but now due to GST, the same process has to be followed all across. Earlier there were many divisions of tax structure which businesses used to look at – VAT, CST, Service Tax, etc. Now, the process has been simplified with one GST. And entire GST process starting from registration, to filing returns and payment of GST is all online.

In most of the cases, GST has reduced the tax burden for startups. Earlier under VAT structure, any business with a turnover of more than 5 lakhs had to get VAT registration and pay VAT. But under GST, this limit is 20 lakhs hence exempting many startups. GST also allows businesses to avail tax credits.

Q: What are the main themes or investment focus areas for investors this year?

A: There are no good times or bad times to invest in. You just need to focus on businesses that are doing good, businesses that are striving hard to attain success for their investors.

Q: The government's focus on startups seems to be on those businesses that provide new and innovative solutions in the fields of agriculture medicine, education etc. in the country. Are these some of the issues investors are looking at? Would investments like these yield good returns?

A: Innovations, if they are helping in solving major problems or prevalent issues are definitely a boost to any economy. Since India needs a major helping hand in the sectors like agriculture, medicine, and education, it is not incorrect to boost the startups which are working on the similar thought process thus helping our country at large.

Investors can also look at such innovations as these innovations can build better India in the long run and reduce our dependence on other nations.

Q: What are the main challenges investors are facing in India today and why?

A: I think the major challenge faced by the investors in India, is the constant change in regulations. Though these regulations are good in long run, in short-term it creates unnecessary panic which further boils down to untimely investments or exits thus hampering portfolio performance.