The government has constituted an expert committee to suggest ways for scaling up of venture capital and private equity (VC/PE) investments, as per a circular issued by the Ministry of Finance on September 13.
The six-member panel will be headed by M Damodaran, the former chairman of the Securities and Exchange Board of India (SEBI).
The committee will "comprehensively study, using a systems approach, the end-to-end frictions and potential accelerants from regulatory policy and taxation to facilitate ease of investing, as well as to encourage investments in India", the circular stated.
The panel will also "review issues, compliances and suggest simplifications and changes" for further accelerating the growth of alternative capital to participate in the VC/PE industry, it added.
Finance Minister Nirmala Sitharaman, while presenting the Union Budget for fiscal year 2022-23 on February 1, had stated that the government was considering to form a committee that will encourage PE/VC investments and address the industry's concern.
Foreign investors' concerns over the years have included paying a higher rate of tax than domestic investors and their portfolio companies not being allowed to directly list abroad. So far Indian companies can list abroad only via depository receipts, a less liquid proxy for shares which are less attractive for investors.
The Damodaran-led committee, as per the circular, has also been asked to suggest measures to "further accelerate investments into start-ups and sunrise sectors", and to suggest "forward looking measures and future ready regulatory practices, in addition to studying and emulating global best practices".
On the day when the panel's formation was announced, a report by industry lobby IVCA and consultancy firm EY said PE/VC investments have fallen to a 19-month low of $2.2 billion in August 2022. The same stood at $4.1 billion in the preceding month - July 2022, and at $11.2 billion in the year-ago period of August 2021, as per the report.
In 2021, companies had cumulatively raised $77 billion of venture capital and private equity, more than 60 percent compared to 2020, and 154 percent higher if Reliance Jio's exceptional fundraising spree was counted, according to an EY report.
Internet startups particularly drove the funding surge, with 43 unicorns- private companies valued at over a billion dollars-in 2021 alone, compared to a record 11 in a previous single year.
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