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APP AVAILABLE ON APP STORE & PLAYSTORE WWW.FINANCIALEXPRESS.COM READ TO LEAD VOL 17 NO. 129, 24 PAGES, `12.00 P U B L I S H E D F R O M : A H M E D A B A D , B E N G A L U R U , C H A N D I G A R H , C H E N N A I , H Y D E R A B A D , K O C H I , K O L K ATA , L U C K N O W, M U M B A I , N E W D E L H I , P U N E Season of down rounds gets N E W S I-T lens on foreign longer for Indian startups IN THE CENTRE MAY PUSH FOR 12%GST FOR HEALTH INSURANCE TO MAKE HEALTH insurance more affordable, the Centre may push for a lower GST rate to 12%, against 18% now, on health insurance premiums up to `30,000, reports Prasanta Sahu. ■ PAGE 2 NEW EV SUBSIDY SCHEME: 20 FIRMS SHORTLISTED THE CENTRE HAS given certification to over 20 vehicle original equipment manufacturers to take part in the short-term e-mobility promotion scheme, EMPS, reports Rohit Vaid. ■ PAGE 5 RBI DIKTAT MAY DENT PEER-TO-PEER LENDERS’ VOLUMES THE RESERVE BANK of India’s ban on defaultloss guarantee for peer-to-peer lenders will likely dent business volumes of some platforms as they will need to redraw partnership arrangements or switch to open market sourcing, reports Ajay Ramanathan. ■ PAGE 6 ISRAEL ORDERS ALJAZEERATO SHUT LOCAL OPERATIONS ISRAEL ORDERED THE local offices of Qatar's Al Jazeera to close on Sunday, including confiscating equipment and blocking its websites, reports Associated Press. ■ PAGE 3 FE S P E C I A L S ■ BRANDWAGON, P9 Taking guard on a new wicket Cremica’s ready-to-eat foray will not be a cakewalk for the company ■ EXPLAINER, P6 Confidential IPO filing: What it implies for firms By keeping the filings confidential, companies can protect their strategic plans MISUSE OF ‘PERMANENT ESTABLISHMENT’ digital entities AYANTI BERA Bengaluru, May 5 MANU KAUSHIK & PRIYANSH VERMA New Delhi, May 5 THE FINANCE MINISTRYhas in recentweeks confronted many overseas digital firms drawing significant business income in India, without paying anyordue tax in the country, by deftly circumventing the permanent establishment (PE) rule. The ministry has invoked the principle of source-based taxation under the Income Tax Act, to question the “organisational structures” built by them to avoid paying taxes on the income earned from operations here, official sources said, on condition of anonymity. Some of these companies are found to have created marketing-support-services (MSS) arms in India — ratherthan marketing arms — to facilitate sales, and held these don’t qualify as PE as the services were rendered from abroad. Tax laws don’t permit authorities to tax a virtual service provider until it establishes a “service PE” or physical presence of its employees for periods longer than specified thresholds. The companies tracked down by the tax department had been taking recourse to the norm that a mere presence of a subsidiary company in India does not automatically make it a PE of the parent company abroad. According to the rule, for a subsidiary to be PE,the parent company’s operations must be conducted“through it”. “Without having any territorial access, a foreign entitycan still have business in India. Most of these entities are registered in Ireland and the Netherlands. Of course, such arrangements aren’t much durable…it’s easier said than done to operate a business in TAX LOOPHOLE ■ Virtual service provider 'organisational cannot be structures' built by taxed until it companies to avoid establishes a taxes on income from ‘service PE’ operations here or physical ■ Some companies have presence of created 'marketingits employees support-services' arms for periods in India for sales, longer than claiming these don’t specified qualify as permanent thresholds establishment ■ Ministry questioning India without having a presence,” an official said.“These entities need marketing people, which iswhytheycreate subsidiaries forproviding marketing support services.The MSS units are actively involved in marketing the product in India, and hence the income they earn is taxable,”the official explained. “Many such cases have been taken up for scrutiny including for years as earlier as 2015-16,” the official said. One tax notice, which FE has seen, speaks about income of `46.4 crore in a year,evading tax. Continued on Page 19 THE SEASON OF down rounds in the startup space is getting longer. Nearly 20% of the large venture capital deals in 2023 and till April this year saw steep reduction in valuations. This is the highest since 2015,according to data sourced from Pitchbook. Prior to 2023, the highest share of down rounds was in 2017, when 17% of the VC deals were made with valuation cuts,afterthe funding exuberance seen in 2015-16. Analysts say the trend is likely to continue through the year. That’s bad news for startups ranging from large unicorns to growth and early-stage. “Down rounds may continue for some time as some of the excess valuations of 2020-21 have not cleared through, in terms of company perfor- CORRECTION PERIOD of large VC deals 20% 2023 and 2024 soin far 20 saw steep valuation cuts, which is the highest since 2015 ■ Prior to 2023, highest share was seen in 2017, when 17% of VC deals were made with valuation cuts 4 5 Share of India VC deal counts (%, YTD) 0 2023 No. of down rounds of the total 20 VC deals in 2024 so far mance catching up, and growth stage deals are still muted relative to historical levels,” said Deepak Gupta, general partner, WEH Ventures. According to Gupta, many founders had pushed their 20 2024 17 Flat rounds Down rounds No. of down rounds out of total 84 deals in 2023 Source: Pitchbook fundraising plans by a year in 2023, but they will now need to emerge for oxygen, which may lead to down rounds. Continued on Page 14 Hindujas eye $50 bn BFSI valuation RAJESH KURUP Mumbai, May 5 HINDUJAGROUPFIRMIndusIndInternational Holdings (IIHL) expects the valuation of its banking, financial services and insurance (BFSI) business to nearly triple to $50 billion by 2030, according to chairman Ashok PHinduja. The group is looking to raise its stake in IndusInd Bank to 26% in tranches from15% at present, while a consortium of lenders has offered to ASHOK P HINDUJA, CHAIRMAN, IIHL I AM HOPING THAT IN A WEEK OR TWO WEEKS WE SHOULD GET THE RESPONSE (ON REGULATORY APPROVALS FOR INDUSIND BANK STAKE RAISE) fund the take-over of debt-laden Reliance Capital (RCap). IIHL’s BFSI business, which includes IndusInd BankandInvescoMutual Fund, would grow from about$17billionatpre- sent to $30 billion in threeyears and then to $50 billion by 2030, Hinduja said.The major share would come from the bank and RCap following the conclusion of the bankruptcyprocess. “OurmasterplanforBFSIisinthemaking.Our team at IIHL is working with outside consultants to come up with a plan to grow the BFSI business… Importance will begiventogetvalueandmovefasttocreate digitisation.Themoreyougetintotechnologythemorethevaluationwillrise,”hesaid, addingthatthevaluationofIndisIndBank is expected be $30-35 billion by2030. Continued on Page 14 Maruti, Hyundai prefer hybrid route to pure EVs SWARAJ BAGGONKAR Mumbai, May 5 THE MIDDLE ROAD THE BIG BOYS of the auto industry, Maruti Suzuki and Hyundai,are increasinglyveering towardspartialelectriccarsorhybridsinstead ofpureelectricones.Thereason?Steeperprice premium on pure electric vehicles (EVs) and growing support fora tax cut on hybrids from from prominent ministers like road transport minister Nitin Gadkari. These two companies,who control 55% of India’s passenger vehicle market, plan to expand their hybrid portfolio by introducing the technology in relatively smaller vehicles, where they have a larger presence, including sports utilityvehicles (SUVs). Onceconsideredastopgapmeasure,hybrid vehicle technology has found many takers in the country amid the growing uncertainty over demand momentum for EVs globally. “Profitability in hybrids is higher and equivalent to the ICE (internal combustion engine). We are increasing the portion of hybrids and reducing the proportion of EV within our portfolio but not reducing our marketshare,”saidatopofficialfromHyundai Motor Company after the March quarter financial results. Last week RC Bhargava,chairman,Maruti Suzuki, said engineers at parent Suzuki are ■ Maruti Suzuki and Hyundai look to expand hybrid portfolio to smaller cars ■ Move follows uncertainty over demand momentum for EVs globally ■ Automakers are batting for lower tax burden; GST and cess on hybrids is between 28% and 43%, against just 5% on EVs working on solutionswhich reduce the cost of hybridisation so that it can be offered on smallercars too.“The ongoingwork at Suzuki will enable smaller cars to take advantage of theprinciplesofhybridisationtoimprovefuel economies at a much more affordable cost,” Bhargava said. Continued on Page 14 FUNDRAISE IN JAN-APRIL HALF OF THAT IN 2023 SME IPO frenzy intensifies VIVEK KUMAR M Mumbai, May 5 THE SME IPO market is on fire and there is no sign of the heatwave ebbing anytime soon.Samplethis:Thetotalfundraiseinthe firstfourmonthsthisyearisalreadyhalfof whatwasseeninthewholeof2023.Market participants say the number of issues and the overall fund activity this year are set to surpass 2023 levels bya long margin. AsofApril30thisyear,73companiesgot listed on SME platforms — BSE SME and NSE Emerge — raising `2,323 crore,as per PRIME Database. In 2023, a total of 182 public issues raised a record `4,686 crore throughSMEplatforms.Thedatashowthat the average issue size has risen to around `32crorein2024,from`26crorein2023. “SMEs are now regarded as an asset diversification rather than a risky play. India is full of great small and medium businesses that are emerging from all corners and being showcased in the capital markets,”said Kush Gupta,directorat SKG – Investments & Advisory. Exchanges launched dedicated platforms forSMEs in 2012.While therewas a STRENGTH TO STRENGTH PUBLIC ISSUES - SME IPOs : EQUITY Calendar year Issue amount (` cr) 2,287 260 2012 2013 2014 2015 2016 14 35 40 43 67 103 Source: primedatabase.com 624 537 267 2017 2018 133 141 746 159 2019 2020 51 27 Number of issues lull in the first few years, the number of issues crossed 100 for the first time in 2017. The total fundraise through SME platforms also surpassed `1,500 crore for the first time that year. Things again went south in 2019,when thenumberofissuesdroppedsharply.Even in 2020 and 2021 — the initial years of the 2,323 1,875 1,679 335 4,686 2021 2022 59 109 2023 2024* 182 73 *(till April 2024) pandemic — the number of SME issues remained feeble.Nevertheless,low interest rates and India emerging as a key investment destination aided the popularity of SME platforms again in 2022. Experts see this as these platforms’moment in the sun. Continued on Page 14 Lucknow