This is not to suggest that all these investments are questionable or all of these are round-tripped Indian money, escaping the eyes of tax officials. A large part of these investments could be legitimate, coming in to take advantage of the interesting business opportunities in a fast growing economy.
But, is it possible for a local entity to get its ill-gotten wealth abroad and route it back to friendly Indian companies at suitably 'astronomical' valuations? Not only politicians. Film stars, sports people, businessmen, bureaucrats and even peons in government offices are always on the lookout for 'safe vehicles' and 'parking spaces'.
Do our regulators know enough about these funds to rule out such possibilities? Do they have data on limited partners and their beneficial owners, where the limited partners are corporate bodies or closely held funds?
This column, on two earlier occasions, has briefly touched upon issues in the alternative funds universe. In 2014, we talked about how an expose by the International Consortium of Investigative Journalists showed it was possible for Indian entities to route funds through offshore vehicles and participate in a PE deal through India-focused PE funds (https://wap.business-standard.com/article-amp/markets/black-money-debate-what-about-p-notes-pes-and-ponzi-schemes-114110301408_1.html). And, last August, Street Food underlined the vast divergence in data reported by Bloomberg on PE deals and that registered in the alternative investment fund (AIF) regime under the Securities and Exchange Board of India (https://wap.business-standard.com/article-amp/markets/street-food-the-fast-rise-of-an-alternative-kingdom-115082400895_1.html).
The latest updated list put out by the latter body, Sebi, in April, showed 209 registered AIFs. A cursory browsing showed a couple of familiar names. But, many of the popular funds operating here and part of sought-after deal stories in the pink newspapers are conspicuous by absence on the list.
Registration with Sebi ensures regulated entities are covered by global anti-money laundering safeguards, such as reporting of suspicious transactions and those by politically exposed persons, etc. If not regularly, the regulator would at least have a lever to force these entities to disclose ultimate beneficiaries, if and when it becomes necessary. However, operating without any sort of registration at all should not be an option.
It is possible that some of these funds not on the AIF list are already registered as Foreign Portfolio Investors but it would help if the regulator knows for sure who is getting in through where. With global sentiment weighing against tax evasion after the Panama Papers expose and recent reports on rising levels of inequality, the time is ripe for removing the lingering doubts about the alternative route.
Recent reports have talked about how Sebi is going to accept recommendations of the panel headed by Infy founder Narayana Murthy on tax treatment and other aspects of AIFs. With the new development of the raids, which came after the panel's report, Sebi should ask for the details from the agencies that conducted these raids and their preliminary findings. This should then be referred to the Murthy panel for their quick views and recommendations.
Meanwhile, Sebi can analyse the findings on its own. All this could push back the timelines by a couple of weeks, if at all. But, it would go a long way in bringing in a more robust and transparent framework for alternative funds in the country.