Foreign companies to be allowed to invest in VCFs as part of
offset obligations
A Rs 30,000-crore corpus for venture capital funds (VCFs) for
defence production by foreign companies -that's the big idea the government is
working on.
A
ministry of defence (MoD) concept note, which ET has reviewed, proposes that
foreign defence companies that have sold equipment to India can invest in VCFs
as part of their offset obligations (at least 30% of the contract value must be
invested back in India).
Foreign
companies can invest up to 25% of their offset obligations in such funds. But
the capital won't be repatriable, only dividends will be. Such VCFs will be
cleared by the defence ministry. They will have to register with the Securities
& Exchange Board of India, as all other funds do. The government sees a
`30,000-crore potential for such VCFs. Investment, the note says, will be in
companies undertaking defence research and in medium, small & micro
enterprises (MSMEs).MSMEs are typically part of the supply chain for larger
projects.
“It is
expected that in a span of the next five years, the fund will be of the size of
`30,000 crore,” another note on the defence offset fund drawn up by the MSME
ministry says.
“This
(the idea for a VCF) is to enable MSMEs to access funds in order to receive
technology and contribute to the growth of Indian defence manufacturing and
exports, hitherto perceived to be constrained by lack of access to funds,” the
MoD note reads. Ankur Gupta, vice-president of EY India, told ET: “The
proclivity of foreign vendors to utilise this proposed avenue could depend upon
the lock-in period, guaranteed rate of return, if any, and safety of the
principal.”
There
have been at least two efforts in the past year to set up a defence-focussed
VCF, but neither received MoD clearance. Senior officials told ET the
government has been in consultations with funds such as Blackstone and Sequoia
to understand global best practices.
The
fund is the latest in a series of efforts by MoD to make offset obligations
easier to meet. Fines of over $35 million have been imposed on foreign vendors
over the past few years. Foreign companies have invested just half of the $1.3
billion investment obligation they had under offset clauses.
Source –
The Economic Times (Delhi)
No comments:
Post a Comment