This has truly been a breakthrough budget for the private equity/venture capital industry.
Tax pass-through for all category I and category II funds, and the ability to blend foreign capital in AIFs, will provide significantly greater access to funds for Indian private equity/venture capital industry. This could propel the Indian PE/VC industry from making annual deployment of $8-9 billion to a trajectory of making 3x the current annual deployment ($25–30 billion) in the next three years. Unlisted companies, who face the most scarcity of capital, are the primary recipients of PE/VC equity.
Two budget measures that will greatly accelerate the availability of debt capital to unlisted mid-sized companies are: (1) enabling NBFCs (mid-sized) with SARFAESI Act and (2) MSME refinancing mechanism through the MUDRA Bank. These measure give greater protection to the lending NBFCs, and hence enhance their ability to lend particularly at the growth stages of companies.
These changes come at a time, when India is superbly poised for sustained, high GDP growth. These measure will create a very enabling environment for entrepreneurship and growth, providing ubiquitous equity and debt capital for all capable entrepreneurs – from push-cartwallah to Flipkart!
The clarifications on permanent establishment regarding India-focused offshore fund managers in India is a good initial platform to enable offshore fund managers to operate from India. While it is a good beginning, it appears to need some work from the government to iron out the execution details before becoming a widely adopted platform.
The PE/VC industry has worked with the government for these changes for three years. It has paid off, thanks to a government that listens and thinks big!
