<div> </div><div><em>Investors feel the growth needs to be visible to the common man or a person coming into the country, writes <strong>Paramita Chatterjee</strong></em><br><br>Even as the government has taken steps to facilitate participation of private equity and venture capital funds in India, investors say that the measures are not yet enough to spruce up investments at one go. Consider this: Almost six months have passed since Finance Minister Arun Jaitley introduced the concept of ‘safe harbour’ for India focused offshore fund managers or funds of funds as they are called to set shop in India.</div><div> </div><div>While the investor fraternity had cheered the proposal in the beginning, for all practical purposes, not many offshore fund managers have been able to create a permanent establishment in the country. “The step in itself is extremely restrictive in nature and that is the primary reason as to why 99.9 per cent of the industry still does not qualify to establish themselves in the country,” says Ashley Menezes, Managing Director at home grown PE giant ChrysCapital. However, the good news is that the first step at least has been taken, he adds.</div><div> </div><div>Albeit, the initiative that the government has taken is to ensure effectiveness in attracting fund managers to operate from India. “This is a very important and positive initiative as fund managers need to do their due-diligence locally,” says Arvind Mathur, president at Indian Private Equity & Venture Capital Association (IVCA). “The government has already pushed the envelope and further fine-tuning of this reform will make India an ideal investment destination,” he adds.</div><div> </div><div>However, currently, there are too many loopholes which need to be fixed before any offshore fund can operate permanently from India. An initiative like this should ideally enable fund managers to closely monitor and interact with local portfolio companies by being on the ground. Further, it should ideally help them identify more investment opportunities and branch out into understanding India better. “The government has come into power with lots of promises but some of its progressive measures are only on paper. Patience is running out,” says another senior fund manager on condition of anonymity. In reality nothing has changed for offshore fund managers as they continue to operate through advisory entities just the way they were doing earlier.</div><div> </div><div>Further, the private equity/venture capital industry has not been able to reap much benefit out of the initiative pertaining to ‘tax pass-through for alternate investment funds’ (AIF). AIF refers to funds that are incorporated in the country itself with pooled in capital from Indian investors. There are three categories of AIFs out of which the government has allowed the tax-pass through scheme in the first two – categories meant for private equity and venture funding. However, the rule specifies that in order to avail the tax benefit a fund has to be registered with Securities and Exchange Board of India. Since, currently, not all the funds are registered with the market regulator and there lies the caveat. A pass-through status means the fund can pass on the tax liability to the end-investor, which is expected to bring in predictability and non-aggressive tax regime that in turn should see a significant growth in PE investments in the country. However, certain changes in this clause too shall bring in clarity for the investor community.</div><div> </div><div>“It is still early days and also there are some critical reforms which still need to see the light of day and moreover a lot still needs to be done on the ground so we will need to wait and watch how all the initiatives pan out,” says Prashant Mehra, Partner, Grant Thornton. Perhaps the biggest disappointment is the pace of reforms. The growth may be work in progress or in numbers but what is important from a sustainability of momentum perspective is that the growth needs to be visible to the common man or a person coming into the country.</div><div> </div><div><strong>Modi’s Reforms In A Logjam; Read Businessworld magazine 24 September Edition </strong></div><div> </div><div> </div>
