Alternative fund rules and the push to ‘Make in India’

The government’s flagship “Make in India” project is aimed at reviving economic growth and making India a manufacturing hub, with the cascading effect of job creation at all levels across urban and rural India. A key driver of the Make in India initiative is increased investment activity in small and medium enterprises (SMEs) and infrastructure. In addition to increased spending by banks and financial institutions, wider participation is required from all sources, particularly private equity investors.

In India private equity capital has long been recognized as an alternative asset class by the government, yet accessing foreign capital by domestic investment funds has not been seamless owing to restrictions under the extant Foreign Direct Investment Policy (FDI Policy) read with the Foreign Exchange and Management Act, 1999 (FEMA), and the regulations issued under FEMA.

Acknowledging the need to remove the impediments, the finance minister during his 2015-16 budget speech proposed allowing foreign investment in domestic investment funds, which are registered with the Securities and Exchange Board of India (SEBI) as alternative investment funds (AIFs) under the SEBI (Alternative Investment Funds) Regulations, 2012 (AIF Regulations). On 16 November 2015, the government notified amendments to FEMA permitting foreign investment in AIFs under the automatic route.

Luthra & Luthra Law Offices is a full-service law firm with offices in Delhi, Mumbai, Bangalore and Hyderabad. Kanchan Sinha is a partner and Shikhar Kacker is a managing associate at the firm. The views of the authors are personal. This article is intended for general informational purposes only and is not a substitute for legal advice.