India raises cap on local PE fund exposure to offshore companies

SEBI set the $500 million limit for alternative investment funds (AIFs) in 2015. It included a requirement that foreign investees must have an Indian connection, such as technology back-end or R&D operations within the country, and that such investments comprise no more than 25% of the GP's investible funds.

The amended rule keeps these mandates and further requires that overseas investments be disclosed within five working days of the agreement, and that funds report if they have not completed the investments within six months of the original disclosure. 

SEBI's 2015 decision, prior to which local funds could only invest 10% of their capital overseas was in response to a wave of start-ups moving operations outside of India while leaving a back office within the country, such as e-commerce business Flipkart and classifieds portal Quikr. The regulator hoped to bring economic benefits to India by enabling more investments in India-linked overseas start-ups.

India's government has pledged to improve business conditions for AIFs, a category that includes most VC and PE funds, as part of its support for the country's start-up and small business community.

Last year's Union Budget, for example, included several items intended to clarify income tax burdens for investors in Indian companies. However, the country's private equity community has expressed frustration with the slow pace of reforms and the lack of action on specific measures requested by investors.

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• Topics
• South Asia
• Regulation
• GPs
• India
• SEBI