Securities and Exchange Board of India
In view of the above background, following recommendations are proposed :
SEBI regulations should be amended to include provisions for registration and regulation of Foreign Venture Capital Investor(FVCI) on the pattern of FIIs and once registered, should be extended .the same facility of hassle free investment and disinvestment without any approval from FIPB/RBI.
Foreign VC Investor (FVCI), registered with SEBI would be eligible to make venture capital investments under automatic route without any ceiling and any requirement of FIPB or RBI approval or alternatively, in the overall ceiling of 50% in any sector under automatic route without FIPB/RBI approval provided the overall ceiling would automatically get substituted by higher ceiling of 51%,74% and 100% as prescribed under Annexure III of Statement of Industrial Policy or will get reduced in accordance with the ceilings for investment prescribed by Government of India in certain specified sectors like banking, insurance etc.
The FVCI should be permitted to park their foreign remittances in foreign exchange in a bank in India or outside till actually invested in VCUs and they should also be permitted to obtain forward cover as permitted to FIIs.
The Government may consider providing a tax exemption to registered FVCI to attract large pool of risk capital directly into India.
6.2Augmenting the Domestic pool of Resources
6.2.1The present pool of domestic venture capital and commitments made by FVCIs is around US$ 1.3 billion. This pool has been predominantly contributed by foreign funds to the extent of 80%. The domestic pool of venture capital is very limited. The acute need for venture capital in India is for small and medium industries which could preferably be financed by domestic venture capital funds, as the foreign funds, seek to invest in relatively larger enterprises and the return expectations are also high. The main sources of contribution for domestic venture capital funds are from financial institutions, banks, high networth individuals, etc. The venture capital activity needs to be deep rooted to promote a small and medium scale industries promoted by professionally qualified entrepreneurs in hi-tech, research oriented sectors. It is therefore necessary to augment the pool of resources for domestic venture capital funds.
6.2.2The investment horizon of a venture capital fund is for a longer duration ranging from five to ten years and the funds are contributed mainly by the institutional investors and high networth individuals. Typically, the institutional investors include Banks, financial institutions, Insurance Companies, Pension Funds, Private Trusts, Endowments and angel investors which in case of India are yet not active into venture capital industry. The expected role of banks, mutual funds
Report of K B Chandrasekhar Committee on Venture Capital24