Foreign venture capital investments may be put on automatic route

23 October 2008

Mumbai: The government is considering registration of foreign venture capital funds under the automatic approval route in order to relax investment norms for long-term funds, reports quoting sources close to the development said.

Unlike in the case of foreign institutional investors (FIIs), overseas venture capital funds have to get their proposals cleared by capital market regulator SEBI before seeking separate clearance from the Reserve Bank of India.

The cumbersome procedure has led to the piling up of over 80 applications from foreign venture capital firms with the RBI under the Foreign Exchange Management Act (Fema).

The inordinate delays have only helped to negate a significant investment opportunity for venture capital amidst a meltdown in the the credit market that has left entrepreneurs with almost no other avenues to sustain their businesses.

The value of VC and private equity deals in India has fallen 28 per cent year-on-year in the September quarter, according to data from Venture Intelligence.

PE and VC firms have struck 116 deals worth $3 billion (Rs14,790 crore) between July and September, as against 115 deals worth $4.2 billion in the same period of 2007, with deals exceeding $100 million dropping by a third.