| Industry and
Capital Market31. In earlier millennia, India led the world on the basis of
knowledge. Today history is repeating itself. Young Indian entrepreneurs are at the
forefront of the infotech revolution, whether in Silicon Valley, Bangalore or Hyderabad.
They have shown us how ideas, knowledge, entrepreneurship and technology can combine to
yield unprecedented growth of incomes, employment and wealth. Companies unknown 5 years
ago have become world leaders. We must do everything possible to promote this flowering of
knowledge-based enterprise and job creation.
32. A key ingredient for future success lies in Venture Capital Finance. After a thorough review, I am proposing a major liberalisation of the tax treatment for venture capital funds. I will describe the details later. To simplify the procedures, SEBI will be the single point nodal agency for registration and regulation of both domestic and overseas venture capital funds. Venture activity is not limited to dot.com companies! Ideas and entrepreneurship, which merit venture finance, can be found in all sectors of the economy. The tax laws and SEBI guidelines are being formulated accordingly. I should add that this liberalisation will give a strong boost for Non Resident Indians in Silicon Valley and elsewhere to invest some of their capital, knowledge and enterprise in ventures in their motherland.
33. In recent months stock markets have been buoyant all over the world, including India. Experience has taught us that there can be hard times as well. It is in such difficult times that institutions like investor protection funds of stock exchanges become really important. I will have something to say on this in part B of my speech.
34. Thanks to our prudent macro-economic management and calibrated approach to currency convertibility, we have successfully weathered the East Asian crisis of the past two years. But we must not confuse caution with timidity. We must encourage Indian firms and businesses to grow into strong, India-based multinationals. To promote this trend, it is necessary to accord our firms increasing flexibility to undertake capital account transactions, especially for acquisitions of businesses abroad. Last month, Government had announced a policy to allow Indian companies to raise funds for investments through issue of ADRs/GDRs without prior Government approval. Up to 50% of these proceeds can be used by them to acquire companies in overseas market. We had also announced on 27th December, 1999, a liberalized mechanism for acquisition of software companies in the overseas market through stock swap options up to US$100 million on an automatic basis. I plan to further liberalize this policy for acquisition of companies abroad to enable Indian corporates, in knowledge-based sectors to grow rapidly and lay the foundation for Indian multinationals in areas where we have comparative economic advantage. For acquisition in other sectors too, I propose to increase the ceiling under the automatic route from existing US$15 million to US$50 million for Indian corporates and beyond this, through approval by the Committee on Overseas Investment.
35. Under existing policy on portfolio investment, Foreign Institutional Investors (FIIs) are permitted to invest in a company, upto an aggregate of 24% of equity shares, which can be increased to 30% subject to approval by the Board of Directors and a Special Resolution of the General Body of the Company. To give our best companies greater access to foreign portfolio investment, I am increasing this limit from 30% to 40%.