RBI has urged the Union finance ministry to prevent foreign investors from side-stepping foreign investment norms by taking recourse to the venture capital (VC) route.
The request is primarily driven by investments in real estate market which is driving up the prices.
RBI has recommended that foreign venture capital investments (FVCIs) be restricted to nine sectors (investment in other sectors being treated as foreign direct investment). It has suggested that capital market regulator SEBI set up a screening mechanism for all pending and future FVCI proposals.
The new set of restrictions will help prevent low capital base, circumvention of takeover guidelines and round-tripping of investments. Out of 58 FVCI applications pending with RBI, 22 are considered to have low capital base.
Foreign investment in the form of venture capital is accorded special concessions not available to normal foreign direct investment (FDI).[ET]
RBI has suggested the govt. to allow foreign investments in sectors that are eligible for the benefit of tax pass-through: biotech, IT, nanotechnology, seed research, R&D to create new chemical entities in pharma, dairying, poultry, biofuels and hotel-cum-convention centres with more than 3,000 seats.