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               Securities and Exchange Board of India

REPORT OF K B CHANDRASEKHAR COMMITTEE

ON VENTURE CAPITAL

1.0PREFACE

1.1Technology and knowledge based ideas will drive the global economy in the 21st century. India’s recent success story in the area of information technology has shown that there is a tremendous potential for the growth of knowledge based industries.  This potential is not only confined to information technology but is equally relevant in several areas such as bio-technology, pharmaceuticals, media and entertainment, agriculture and food processing, telecommunication and other services. Given the inherent strength by way of its human capital, technical skills, cost competitive manpower, research and entrepreneurship, India can unleash a revolution of wealth creation leading to employment generation and rapid economic growth in a sustainable manner.  What is needed is risk finance and venture capital environment which can leverage innovation, promote technology and harness knowledge based ideas.

1.2In the absence of an organised venture capital industry, individual investors and development financial institutions have hitherto played the role of venture capitalists in India. Entrepreneurs have largely depended upon private placements,  public offerings and lending by the financial institutions. In 1973 a committee on Development of Small and Medium Enterprises highlighted the need to foster venture capital as a source of funding new entrepreneurs and technology. Thereafter some public sector funds were set-up but the activity of venture capital did not gather momentum as the thrust was on high-technology projects funded on a purely financial rather than a holistic basis. Later, a study was undertaken by the World Bank to examine the possibility of developing venture capital in the private sector, based on which the Government of India took a policy initiative and announced guidelines for venture capital funds (VCFs)

1.3Thereafter, the Government of India issued guidelines in September 1995 for overseas venture capital investment in India. For tax-exemption purposes, guidelines were issued by the Central Board of Direct Taxes (CBDT) and the investments and flow of foreign currency into and out of India is governed by the Reserve Bank of India (RBI).  Further, as a part of its mandate to regulate and to develop the Indian capital markets, Securities and Exchange Board of India (SEBI) framed  SEBI (Venture Capital Funds) Regulations, 1996.

1.4Pursuant to the regulatory framework mentioned above, some domestic VCFs were registered with SEBI.  Some overseas investment has also come through the

Report of K B Chandrasekhar Committee on Venture Capital8

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