Private equity in India backs innovation, manufacturing and Bollywood cinema

by Moris Beracha

India shows a greater and more sustainable economic growth than the other countries that make up the so-called BRICS...

Moris Beracha.- Many of those who know me know that I am passionate about a country like India, its people, its culture, its art or its food, including its spiritual contribution, but let’s leave that for another article among what we have called my causes, and let’s take a closer look at how private equity further renders dinamic start-up companies in this gigantic country where initiative and creativity are found on the streets.

In a previous article I explained something from India, also from Argentina or Spain with the so-called “new unicorn”, but now I want to focus more on the recent data we have on the Indian case after the report on private equity Bain & Company, a consulting firm with headquarters in Boston and offices in several cities around the world, including two of the great cities of that Asian nation: Delhi and Mumbai.

Let’s look at macroeconomic data: India shows a greater and more sustainable economic growth than the other countries that make up the so-called BRICS, of which Brazil, Russia, China and South Africa are members. The group, on average, grew 4.5% in 2016 compared to 7.6% in the Indian economy, according to the report by Bain & Co.

There are two programs that precisely accelerate this growth and at the same time strengthen entrepreneurship, which use private equity as a source of financing: one is the “Make in India”, aimed at strengthening national production and consumption mainly under the government procurement policy; and the other is Start Up India, introduced by the Department of Ministry of Commerce and Industry.

The staff of Bain & Co regard private equity as alternative investment funds – abbreviated as AIF – and calls them this way because they are not the traditional instruments offered by banks, nor they refer to fixed income securities as the issuance of bonds, nor the offer of shares of publicly traded companies.

“AIFs have grown in the Indian market, helped by government regulations and tax exemptions, so that the amount registered has more than doubled in the last two years to about 270 by the end of 2016,” according to the summary of the report.” They have made a significant contribution to increasing fund raising mechanisms in the Indian market, contributing in 2016 to 41% of the capital inflows, compared to 11% in 2014,” it added.

Numbers in Rupees (the currency of India) are equivalent to 16.8 billion dollars, mainly for start-ups linked to the technology sector, which accounts for 20% of the contributions raised by these funds and it draws attention since it supports Innovation and education.

Why does this happen? Are the Indians more technologically oriented than the rest of the world? At first glance we could say that yes because it is impressive to ride a motorcycle or walk through any city in India and see the predominance of the technology, but that is not free, it is part of public policies that certainly have been intensified during the administration of first Minister Narendra Modi.

Startup India’s portal points out the priority that the government of that country places on entrepreneurship: they must be aimed at innovation or involve an improvement in the service or manufacturing processes, they must have the potential to create productive jobs and they should not have more than 7 years of creation, although cases of biotechnology are granted up to 10 years.

Hence there are also private equity contributions to the insurance sector, banking, manufacturing industry, without excluding the booming Indian film industry, especially that made in studies of Mumbai, known in the West as Bollywood, word that combines the old name of this city (Bombay) with the denomination of Hollywood.

The financial press in Mumbai reports how beautiful actresses such as Bipasha Basu or Shilpa Shetty, the well-known actor Salman Khan, or composer AR Rahman, winner of the Oscar for Slumdog Millionaire have invested or promoted private equity and whose contributions have been used to finance the production of films in which they participate.

Undoubtedly, India is an example of how private equity democratizes capital; it is a powerful tool for entrepreneurship, since it creates employment and it certainly helps to reduce poverty.




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