Economy uncertainties may cost India $2-3 billion in annual investments

NEW DELHI: Economic and policy uncertainties could cost India annual investments of up to $3 billion from private equity funds and venture capitalists, according to investors' grouping IVCA.


Indicating that foreign investors are "cautious" about investing in the country, the Indian Venture Capital and Private Equity Association (IVCA) has said the "wait and see" approach cannot go on for a long period.

The comments from the IVCA, which represents more than 100 PE and VC firms including Warburg Pincus India and Temasek, come at a time when the country is witnessing slow growth and uncertainties over proposed FDI policies.

"...things are tough and are getting tougher. Also, we know that there will be sort of uncertainty in policy making due to looming elections.

"Because of the (economic) uncertainty, India will lose about anywhere between $8-10 billion in the next couple of years. India tend to lose $2-3 billion every year if things don't really (improve)," IVCA President Mahendra Swarup told PTI in an interview.

IVCA members are estimated to be managing about assets worth about USD 45 billion.

Acknowledging that investments by PEs and VCs have significantly slowed in recent years, he said that there should not be long delays in implementing policy decisions.

"I think the government is making the right kind of moves. I think where the problem arises is between the policy announcement and the intent and before it is executed, the time gap is so much that lot of debates happen.

"Once the Cabinet makes up the mind that we have to execute, it (the decisions) should be implemented and not give chance for diverse views...," he said.

In recent times, many of the government proposals including FDI in insurance and multi-brand retail sectors are facing stiff political opposition.

"The wait and watch (approach) cannot go for very long because I would say that the foreign investors' patience is reaching a threshold where they may stop looking at India," Swarup, also Managing Director of Avigo Capital, said.

Going by estimates, PEs and VCs pump in around USD 8 to 10 billion every year into the Indian market. The investment horizon for these entities generally is between 7-10 years.

One of the biggest PE deal in recent times is USD 1.2 billion investment by Qatar Foundation's in Bharti Airtel.

Meanwhile, sluggish economy and depreciating rupee has further eroded expected returns on investments made by them.

When asked about demands of PEs and VCs in India, Swarup said that their investments should be considered as long term.

"We have specific operational issues like pass through in taxation, categorisation (as investors)... We are looking for recognition as a separate asset class and be treated as long term investors. We are not hot money we are long term money," he said.