Financial Daily from THE HINDU group of publications
Sunday, Dec 08, 2002
Financial Daily from THE HINDU group of publications Sunday, Dec 08, 2002 |
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Info-Tech
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Venture Capital Industry & Economy - Foreign Direct Investment VCs prefer India to China G. Srinivasan
NEW DELHI, Dec. 7
INDIA can be proud of the fact that venture capitalists are betting their smart money in India than in China, pointing to the potentials of this source in boosting foreign direct investment (FDI) inflows. Official sources told Business Line here that the committee headed by the Secretary, Department of Industrial Policy Promotion (DIPP), Mr V. Govindarajan, which went into the whole question of revising the estimation of FDI as per the IMF standards, is reported to have recommended inclusion of venture capital funds from abroad as part of FDI flows. Citing an article from a Hong Kong-based weekly's forthcoming issue on how venture capital was bringing more funds to India than China, the sources said over the past seven years, Mr John Levack, Asia Managing Director for British venture-capital firm Electra Partners, has taken in $54 million in profits on his Indian investments. Venture capitals, specifically with an investment span of five to seven years, are the hot draw in India as "top Asian destination" for private equity last year — drawing $841 million, outstripping Australia, China and South Korea — and the average investment more than doubled last year to $7.9 million from $3.9 million in 2000, according to Venture Economics, an industry tracking company. For the venture capital providers, India's software segment continues to be the lucrative area for funding since its success does not hinge, as heavily on the strength of the domestic distribution channels as does the manufacturing export sector in China. The sources said the US-based investor Warburg Pincus also expects more opportunities for its investment in India. The firm has about $1 billion of investments in India, making it by far the largest single investor in the country. Though the differences in computation of FDI flows between China and India are well documented, the sources said that once the official committee's revised estimation of FDI is implemented, the differences on this score might not seem that wide. Official FDI figures show that China lured $47 billion in FDI last year against India's $3.8 billion in 2001. But shorn of "round tripping", where mainland funds leaving China return as foreign investment to gain tax and other spurs, the World Bank contends that as much as half of China's FDI could actually be domestic cash, slashing its last year FDI total to about two per cent of GDP. On the other hand, an IFC study states that India underestimates its FDI as it might have received up to $8 billion last year (1.7 per cent of GDP), if due allowance is made for incomplete data and non-inclusion of other ingredients which normally international standards stipulate, the sources said.
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