Top private equity players call for policy to become 'atmanirbhar'

Some PE fund leaders are making a strong pitch to the government for a policy framework to encourage the growth of a vibrant, "atmanirbhar" domestic private equity industry to rival that of China

Some private equity (PE) fund leaders  are making a strong pitch to the government for a policy framework to encourage the growth of a vibrant, “atmanirbhar” domestic private equity industry to rival that of China.  

The initiative comes after Finance Minister Nirmala Sitharaman announced in her Budget speech that the government is planning to set up an expert committee to help scale up private equity/venture capital (VC) investment by undertaking a holistic examination of regulatory and other frictions. In India, global PE funds dominate the business and in 2021 invested a record $50 billion in the country in 2021.  

Speaking to Business Standard, Amit Chandra, chairman of US PE firm, Bain Capital in India, and head of CII committee on private equity and venture capital, said, “Just like the government has done a great job with the PLI framework, we should use the opportunity of the expert committe to not just address the issues of friction but how to build an  atmanirbhar, vibrant domestic PE industry.” Currently, the country has sprinkling of a few domestic funds. He added, “Over the past decade or so, we have made a start but it is imperative for our domestic PE and VC industry to grow rapidly so that India becomes a financial powerhouse.”  

Chandra pointed out that 10-15 years ago, Chinese domestic investors accounted for less than 5 per cent of the total inflow of private equity and VC funds globally. Yet last year, their share went up to one-third of the $700 billion inflows into the PE/VC industry. “Should we not aim 5 per cent at least?” Chandra quipped.

He argued that history shows that this asset class, while not offering liquidity, does offer better returns amongst other asset classes for long term investors.  Also  “risk capital”, which is key for the growth of start-ups, is largely funded mostly by western PE funds (except for a few in the east like Softbank).

“Therefore, if we want to fund entrepreneurship at an accelerated pace, and if they succeed and create wealth, it is imperative that we build an alternative domestic industry parallelly. Why should we create those returns only for foreign investors and not create it in India?” he argued.

He says that  global LPs (which prefer to have regional, rather than country funds) should  also participate in the Indian growth story.    

As the head of an industry association committee, Chandra has been gathering suggestions from indsutry players for key areas which the government’s expert committee could look into to encourage the domestic PE industry. He says that the indsutry is not looking for sops but for a level-playing field by removing disincentives across asset classes.  One suggestion is that listed and unlisted securities  should be treated on a par for taxation purposes.

The committee, he says, should get various regualators like IRDA, RBI and Sebi together to understand the pain points which prevent greater flows since a comprehensive framework like the IBC is required rather than something piecemeal.  

Chandra said, “Where the government wants to consider incentives, it might want to do so for those who consider operating out of GIFT City. The aim should be to make GIFT City a major centre for alternative investment for the world, or, at least, for Asia, to rival Singapore and Hong Kong.”

He also suggested special incentives for certain select sectors of strategic relevance such as the MSMEs which have suffered in the last two years, and yet play a disproportionate role in employment generation. “Domestic or foreign PEs have not played a big role in funding MSMEs. The government could provide very spcific incentives to encourage PE and VC funds to invest and lend here. This can  be done through coinvestment from government-backed vehicles that meet a certain bar or changing risk weightages for venture debt funds.”