Temporary impact on startup funding to India due to govt curbs: CEA

By: |
October 14, 2020 4:37 PM

There will be a temporary impact on investment flow to start-ups due to the curbs imposed by the government to stop opportunistic takeover by firms from countries with which India has border tensions, Chief Economic Adviser K V Subramanian said.

Hard-pressed for funds to combat rising coronavirus infections, the government in May increased its market borrowing programme for the current financial year by more than 50 per cent to Rs 12 lakh crore.The decision has bearing on foreign investments from countries like China and Hong Kong.

There will be a temporary impact on investment flow to start-ups due to the curbs imposed by the government to stop opportunistic takeover by firms from countries with which India has border tensions, Chief Economic Adviser K V Subramanian said on Wednesday. According to a Press Note 3 issued by the Department for Promotion of Industry and Internal Trade (DPIIT) in April, a company or an individual from a country that shares land border with India can invest in any sector here only after getting government approval. The decision has bearing on foreign investments from countries like China and Hong Kong.

Speaking at a virtual event organized by FICCI, Subramanian said investment, both direct and indirect, coming from countries, especially with which India has border tensions, needs to be scrutinised. As a result, he said, “There will be some impact on start-up funding in the short run, but I do think that space will get filled by a large number of private equity (PE) companies from other countries.” He was replying to a question on if Press Note 3 will have any impact on investment flow from Hong Kong. PE firms from other countries are interested in participating in the start-up ecosystem, he said, adding that “I expect this impact to be temporary”.

India received FDI worth USD 2.34 billion (Rs 14,846 crore) from China between April 2000 and December 2019. Speaking on insolvency and bankruptcy process, Subramanian said the ecosystem of creative destruction is important for any economy. “IBC (Insolvency and Bankruptcy Code) process is an evolving process and there is still scope for making it more efficient,” he said. He said there are some important market failures in creative destruction which need to be focused on to bring in greater efficiency.

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