In a bid to attract investments in mining-related R&D and exploration, the government proposes to relax entry and exit norms for foreign venture capital funds in this high-risk sector and offer them tax incentives akin to those available for pharmaceutical firms.
The R&D investment by drug companies is eligible for a 200% weighted deduction while calculating their taxable income. The government plans similar sops for mining R&D and a set of tax rebates for exploration of minerals buried deep.
According to sources, the ministry of mines has urged the finance ministry to provide fiscal incentives for mining R&D and exploration. A separate proposal for relaxing entry and exit norms for VC funds is under consideration by both Sebi and the finance ministry, the sources added. The proposals have been discussed at recent high-level meetings among officials from the finance and mines ministries, investment bankers and other funding agencies.
According to Sebi guidelines, a foreign VC cannot invest more than 25% of the funds committed for India investments in a single venture. The mines ministry wants the lock-in period for the VCs to be relaxed too.
These sops, if cleared by the finance ministry, will be over and above the liberal regime for investors proposed in the new mining Bill ? MMDR Bill ? cleared by the Cabinet recently. Once it becomes law, mining-related awards, concessions and leases could be transferred by the investors. Besides, there will be certainty on the tenure of these awards.
Mines secretary Vijay Kumar said: ?It is too early to discuss what could be the specific incentives for VCs as we still have a couple of more meetings to go. We have taken up the matter with various officials including those from of finance ministry and we are definitely looking at VCs? role in R&D and exploration.?
The government allows 100% foreign direct investment (FDI) for exploration and mining of diamonds and precious stones through automatic route. As per the department of industrial policy and promotion, the mining sector received FDI worth $106.15 million till June 2011-12, $6.78 million more than in January 2011.
However, there is little venture capital investment in any mining activity. According to some of the private equity firms, the primary reason is the high risk and uncertainty in the sector.
?It would be very difficult to attract venture capitalists in the mining sector as such investors come only for the sun-rise sectors like pharma. To attract VCs into mining will be difficult as the risk is so high,? said Sanjay Sethi, senior executive director and head(infrastructure group) of Kotak Investment Banking.
The ministry last week held a meeting with various officials of finance ministry and Sebi to discuss the same.