Centre seeks inputs over FDI dip worries

livemint.com:

MUMBAI, NEW DELHI : Concerned about the decline in foreign direct investment (FDI) ahead of next year’s national elections, government officials met with alternative investment funds, startup founders and fund managers last week to identify and iron out operational challenges impeding capital inflows into India, people present in these meetings said. During the meeting with the department for promotion of industry and internal trade (DPIIT) officials, industry participants highlighted tax authorities’ reluctance to understand the valuation and revenue mismatch in high-growth startups.

“Authorities are questioning founders on how they are able to justify their lofty valuations with low revenues and often suspect there is a tax theft," said a person who was present at the meeting. The meeting coincides with a significant decline in private equity (PE) and venture capital (VC) investments in India over the past six months.

This is partly because of higher interest rates in Western nations increasing the cost of capital, making investors wary about deploying capital in risky markets as they were doing earlier. According to data from Venture Intelligence, a PE-VC data provider, there were 332 deals valued at $17.6 billion in the six months to September, down from $21.7 billion in the year earlier.

At the peak of the funding cycle, the figure reached $37 billion for the six months to September 2022. Overall, India received FDI inflows of $70.97 billion in the year ended 31 March, including equity inflows, reinvested earnings, and other capital sources, compared with $84.83 billion in the previous year.