India now has a once-in-a-lifetime opportunity to significantly increase the flow of worldwide long-term capital by extending the LTCG tax exemption to investments by all regulated global alternative investment made (PE/VC) in desired sectors—a potential LTCG tax only a rises within the future at the time of exit from an investment in India by a long-term investor.
When it comes to fiscal stimulus, the pandemic-struck world seems like déjà vu (by a large multiple) of the 2008 financial markets implosion when it involves credit raining from the treasury chests of the rich governments of the US, the UK, Europe, and Japan. While most of those measures are aimed toward immediately reviving business activities within the respective markets, the reality of monetary markets dictates that a particular proportion of this surfeit of money would be deployed in investment avenues outside the domestic markets. It seems fair to presume that, besides a rethink on supply-chain dependencies by manufacturing MNCs, global institutional and alternative investment funds too would check out diversification of their investments.
India has said about the further opening from sectors like insurance and defence-related to its economic revival package. within the 2019 Budget, a move to afford long-term capital gains (LTCG) tax exemption to sovereign wealth funds (SWFs) for investments in specified infrastructure projects within the next three years signalled India’s resolve to draw in long-term and patient, institutional, global investment capital. India having the once-in-a-lifetime opportunity to an important rise in the flow of worldwide long-term capital by extending the LTCG tax exemption to investments by all-controlling global alternative investment (PE/VC) in desired sectors—a potential LTCG tax only arises within the future at the time of exit from an investment in India by a long-term investor.
Another area is attracting fund managers of India-focused funds also as global funds with a significant India allocation to line up shop in India. The AUM of FPIs in India is on the brink of $400 billion (as per NSDL-FPI Monitor) and that of India-focused FPIs alone is estimated to be $40 billion (EY research). In the past fund management companies of even 100%, India-focused funds have typically been selected to be placed in jurisdictions like Mauritius and Singapore.
The stars included in the global investment industry are aligned with India. By effecting smart changes in existing provisions on LTCG tax exemption for global investment funds and giving large clarity and certainty, with related to taxation of funds investing in Indian companies where fund management is completed in India, it’s possible to attract a far higher level of worldwide long-term investment flows with minimum cost to the exchequer.
