The VCFs could fund Indian companies doing military R&D and MSMEs
VCF corpus potential of Rs.30,000 crore can be achieved in 5 years
Foreign OEMs may be given option to invest part of defence offset obligations
New Delhi: In its latest out-of-the-box thinking, the Narenda Modi government is planning to use offset obligations of foreign majors in Venture Capital Funds, with a Rs. 30,0000-crore potential over five years, for investment in Indian companies doing defence production.
That’s the next big idea the Modi administration is working on to fund for its defence programs, the Economics Times reported today. This move is expected to further ease the process of doing business in India for foreign companies.
The Manohar Parrikar-led Ministry of Defence, the report said, has prepared a concept note in this regard. The ministry has proposed that foreign defence companies that won contracts in India can invest in the venture capital funds (or VCFs) as part of their offset obligations.
The Indian offset clause in defence contracts mandates successful foreign companies to plough back at least 30 per cent of the value of the deal back in India. This clause is applicable only for contracts worth Rs. 2,000 crore or above, under the Defence Procurement Procedure 2016 (or DPP-2016) released at the DefExpo show in Goa on March 28. Earlier, the cut-off was Rs. 300-crore contract.
Under the new proposal on the VCFs, the government has suggested that foreign companies can invest up to 25 per cent of their offset obligations. “But, the capital won’t be repatriable, only dividends will be,” the report said.
The defence ministry will clear such VCFs, which would have to register with the Securities & Exchange Board of India (or SEBI), like other such funds do.
The investment from the defence VCFs will be made into Indian companies carrying out military R&D and in Micro, Small & Medium Enterprises (or MSMEs).
The defence venture capital funds could reach its potential investment in the next five years, another note from the MSME ministry was quoted as saying by the ET report.