Securities and Exchange Board of India
can freely make investments. This has brought positive investment and the net investment are around US$10 billions. It would therefore, be desirable that atleast at par with FIIs. FVCIs are allowed the facility of registration with SEBI and once registered they should have the same facility of hassle free investments without any requirement of approvals from FIPB/RBI. This would also provide authentic data and disclosures as regards their commitments and investments in VCU in India. Presently, as per Annexure III of the Industrial Policy 1991, there are already several sectors which are eligible for the investment under automatic approval route varying from 50% to 100% of the paid up capital of the companies. In case of NRIs and OCBs this limit is 100%. Keeping this in view and venture capital being a thrust area for attracting risk finance for development of business and industry, 100% inflow of funds of the foreign venture capital investors should be allowed through automatic approval route without requiring either FIPB/RBI approval once registered with SEBI. Appropriate regulatory requirements in respect of FVCIs could be incorporated under SEBI venture capital funds regulations. Alternatively, FVCIs should be allowed to invest within overall ceiling of 50% of the paid up capital of the investee company under automatic route. However, the ceiling of 50% would get substituted by higher ceilings of 51%, 74% and 100% in respect of the sectors as provided in annexure III of the Statement of Industrial Policy and would get decreased accordingly wherever Government of India has prescribed lower ceiling as in the case of insurance, banking sector etc. This proposal is consistent with the existing policy of Government of India as regards automatic approvals.
6.1.4The hassle free entry of such FVCIs on the pattern of FIIs is even more necessary because of the following factors :
Venture capital is a high risk area. In out of 10 projects, 8 either fails or yield negligible returns. It is therefore in the interest of the country that FVCIs bear such a risk.
For venture capital activity, high capitalisation of venture capital companies is essential to withstand the losses in 80% of the projects. In India, we do not have such strong companies.
The FVCIs are also more experienced in providing the needed managerial expertise and other supports.
6.1.5Further, the FVCI bringing in foreign currency should be permitted to retain the same in foreign exchange either with the Bank in India or outside till it is actually invested. Further, as permitted in the case of FIIs they may be permitted to take forward cover to protect against the currency, price fluctuation risk.
Report of K B Chandrasekhar Committee on Venture Capital23