Family Businesses, which typically account for 85% of all businesses in India(1), are a fundamental backbone to the Indian economy. Considering their 79% contribution to India’s GDP(2), it is hard to imagine a thriving Indian economy without thriving Family Businesses and consequently thriving Family Business Owners (FBO). While the economic impact of Covid is yet to crystalize, FBO’s are carefully evaluating the impact of Covid on their long term strategies. They are using this as an opportunity to plan for the future by undertaking Succession Planning and diversifying family interests amongst other actions
For many FBOs, Covid has not been a hard reset but a gentle push towards re-evaluating the holding structure of the family’s personal and business assets. Many FBOs are looking to structure their inheritance. Thus, the increased discussion on succession planning to effectively address key objectives such as rationalising family holdings, re-aligning economic and management interests, and harmonise family participation and governance.
Aside from the above, the uncertainty on the possible reintroduction of Inheritance taxes, removed in 1985, is also a critical element to be considered. Should it be reintroduced, this measure may align India with many developed countries such as UK, US and Japan, to levy taxes on immovable and movable properties/assets that have been inherited by family members from the FBO. Succession planning potentially looks to evaluate such risks and prepare in advance by setting up of Trust structures to manage succession and inheritance.
Covid has also acted as a catalyst for many families to diversify their investments, including geographical diversification. The Next Gen are looking at ways to invest abroad. This often also results in evaluation of immigration interests and setting up a family office in appropriate jurisdictions. There is thus also an increased interest in “Golden Visas” or citizenship by investment in countries which grant passports by investments in business and residential assets.
The above plans are some of the many positive steps which FBOs are acting on to ensure stability of their long-term family interests, amidst such turbulent times. All in all, while, there are some, who are cautious, there are many who look at this as an opportunity to revaluate and refocus with a future positive outlook.
(The Writer is tax partner and Private Client Services leader, EY India. She is assisted by inputs from Sumanth Karlapudi, Tax – Director, EY India. The views expressed are personal)
Footnotes (1) (2)
1 Report on Family business by Indian School of business (ISB), 2013
2 Family Firm Institute Inc – Global Data Points