The BJP-led government should encourage the investment climate for private-equity (PE) and venture capital (VC) sector in the country as part of efforts to revive the economy, industry executives said on Friday.
Executives in the PE and VC industry feel that a prerequisite for domestic growth is encouraging investments into industry and infrastructure, including health care and education. Darius Pandole, Partner, New Silk Route Advisors says development of the domestic PE and VC industry would have multiple benefits for the economy. "One avenue to achieve this would be to incentivise domestic investors, with conducive tax and regulatory policies, to channelise capital flows into the domestic VC and PE industry," he says.
Pandole says that apart from providing long-term risk capital, participation by VC/PE funds provides companies with access to technical, financial and business expertise, and also facilitates higher corporate governance standards and international best practices. "In addition, any steps that will re-ignite the equity culture in the country, especially encouraging retail investors to enter the stock market, would be welcome," he adds.
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Mahendra Swarup, Managing Director and Partner at Avigo Capital, says given that the BJP-led National Democratic Alliance has a clear mandate they should go about putting the policies in order, especially with respect to infrastructure sector in which considerable investments were made by PE funds in 2006/07. "Policy consistency will go a long way in bringing investor confidence back in the sector, which is grappling with a slowdown."
The industry is also hopeful that the exit widow will open again. "With the capital markets improving, exits should happen again given that the last two years saw just a handful of IPOs," said Rajesh Srivastava, Chairman and Managing Director, Rabo Equity Advisors.
Foreign investor confidence in India has been hurt over the past couple of years due to a slowing economy, weak rupee and policy inaction. International investors in PE funds were weighing their India commitments for the past two years and some increasing their commitment to other emerging economies such as China and Brazil.
Returns on investments in India also took a big hit when the rupee weakened, putting fund managers in a fix to invest or not as investments are made in rupees and returns have to be generated in dollars.
But the message is clear now. The new government would need to clear the logjam in the infrastructure sector on an urgent basis. Pandole says the government should incorporate measures to create a more enabling environment and facilitate project execution on the ground. "A number of projects, especially in infrastructure, have been significantly delayed due to a variety of obstacles. By making it easier to procure land, licenses and permissions, by encouraging public-private participation models and by introducing reforms like the Goods and Services Tax to create a single market across the country, the government will infuse confidence to enable better project management and thereby achieve higher economic growth and investment opportunities."
Rehan Yar Khan, General Partner and Founder, Orios Venture Partners, says he would want the new government to improve the speed of execution at all levels of governance so that India can rank in the top 20 instead of 132 on the ease of doing business. "This will greatly assist entrepreneurs get started in business and scale up quickly. Currently, entrepreneurs face many bureaucratic and regulatory hurdles and have to spend an inordinate amount of time getting over these hurdles. Improved ease of doing business will also attract larger capital to India and will greatly improve FDI flows."