Evolution of Private Equity Regulations in Emerging
Markets: A Case of India

Abstract

Post liberalization in 1991, the private equity (PE) industry has played a significant role in India’s growth story, contributing more than $100 billion of stable long-term capital in the last 15 years. Owing to its fast emergence, the PE industry went from having ad-hoc regulation to a formal regulatory framework. This evolution presents a good case to study and understand financial policy making as it happens in emerging markets. This article is also a comprehensive guide for PE investors who want to understand the history and landscape of PE regulations in India.

The authors track the evolution of regulatory environment for the PE industry in India, from SEBI (Venture Capital Funds) Regulations 1996 to the SEBI (Alternative Investment Funds) (Amendment) Regulations 2013, which govern the industry today. This historical study shows that while regulators in emerging markets are usually reactive rather than proactive, it also emphasizes the importance of effective regulation in boosting an important industry like PE. It highlights the fact that a regulator should not create regulations in isolation; it is critical to take inputs from different stakeholders to develop effective regulations.