India’s finance minister P. Chidambaram has proposed a 35 percent tax on stock options issued by Indian companies. Software and hardware information technology, telecommunications and biotechnology – all high growth industry segments – would be affected.

If Chidambaram’s proposal becomes law, Indian companies will have to pay the tax on all stock options (ESOPs) issued to employees. This could dampen VC investment into India and discourage entrepreneurial activity in software as well as in biotechnology.

However, surprisingly, most Silicon Valley investment firms are optimistic that these short term tax changes won’t make India less attractive for long-term investment. They predict that money will continue to roll into India’s markets.