India Budget 2011: What is there for PE and VCs?
Budget 2011 provides a sweetener for Private Equity Houses in India especially in the infrastructure sector and enhancing limits for foreign investments in the country.
March 01, 2011 / 17:05 IST
Budget 2011 provides a sweetener for Private Equity Houses in India especially in the infrastructure sector and enhancing limits for foreign investments in the country. While sectors like the power sector have been given special attention, there appears to be some ignorance of the IT sector in terms of non extension of STPI tax holiday period and additional tax for SEZ units. It is certain that these and other proposals will direct the PE houses to rework financial models and valuations of their investments made in India.
In the light of the despondency in the Indian economy due to recent events, it was necessary for the Finance Minister to lift the veil of gloom through Budget 2011. This short article focuses on the implications of the India Budget 2011 on PE Houses and VCs.Key reformsThe Government has displayed an all round show in the current Budget and has already set the pace for growth by offering some attractive incentives to the Indian entrepreneurs and the investors around the globe.The infrastructure sector has received an impetus in the form of increased funds and tax related incentives offered to attract investors for tapping the infrastructure opportunities around the country. Introduction of tax free bonds, creation of infrastructure debt funds, formulating a comprehensive policy for developing public private partnership projects are some announcements which will give a fillip to the infrastructure sector which is the backbone of any economy.Foreign investmentsSEBI registered mutual funds would now be permitted to accept subscription from foreign investors who meet Know Your Customer (KYC) requirements for equity schemes. This opens the gateway for the Indian mutual funds to foreign investments. Currently, only a Foreign Institutional Investors (FII), FII sub-account registered with Securities and Exchange Board of India (SEBI) and Non Resident Indians can invest in mutual fund schemes. This amendment could be said to be an indirect investment by foreign investors in listed securities.In addition, the proposal to enhance limits of investments by FII in the infrastructure sector will certainly add fuel for growth.There has been a passing reference of further liberalizing the Foreign Direct Investment policy to boost the much needed foreign inflow into the country for escalation in growth. One needs to wait and watch as to how the Foreign Direct Investment (FDI) regulators choose to fill the gap to go hand in hand with the Government objective. The next comprehensive FDI policy is due on 31 March 2011.The balancing act
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