New Delhi, The Finance Ministry is in dialogue with the Securities and Exchange Board of India (SEBI) to tighten the venture capital regulations and also tackle the host of issues that has emerged in the changed economic context.
“We are looking at a whole question of how can we define the sector tightly,” a Finance Ministry official said. The Finance Ministry may see merit in leveling the playing field between domestic venture capital institutions and the foreign venture capital institutions (FVCIs).
For instance, there is a minimum capitalisation norm that is applicable for domestic institutions. The same is not mandated for the FVCIs. The domestic funds also face some disadvantage on the tax treatment vis-À-vis the FVCIs, who take benefits from the tax treaties.
A case may also be made for revisiting the current regime that allows venture capital funds to invest one-third of its monies in listed companies. “I think the regulations have got it wrong on this issue," observed Dr K.P. Krishnan, Joint Secretary, Ministry of Finance, after releasing a report on ‘Indian Venture Capital’ at an Assocham function here today. The SEBI Wholetime Member, Dr T.C. Nair, was also present on the occasion.
‘Association welcomed’
Dr Nair said that the setting up of venture capital association of India (VCAI) was a welcome move as SEBI could get more information on the activities of this sector in the country. He highlighted that SEBI did not have a complete picture of the activities even though a number of venture capital funds were registered with the capital market regulator. Dr Nair later indicated that a number of regulatory changes were on the anvil in the area of venture capital in the coming days.
The Reserve Bank of India (RBI) is also understood to have urged the Finance Ministry to prevent foreign investors from manipulating the foreign investment norms by using the venture capital route. Meanwhile, on the level-playing field issue, the Finance Ministry may insist on review of the existing concessions given to FVCI in respect of exemption from takeover code and exemption from the one-year lock-in period for sale after initial public offering. Such concessions are not available for foreign direct investments.
