E66: Why Global Capital Is Increasingly Investing in India

AIME Episode 66 Transcript

Sarah Florer (00:02.688)
Hi, everyone. Welcome to Alt Investing Made Easy. This is our first episode of 2026, and we're so pleased to be here with our colleagues from the LEI Network, Neil Mather and Aravind Mokkapati. They're from...

Aravind Mokkapati (00:03.418)
Yeah. Yes.

Sarah Florer (00:26.578)
MCM Law based in Bangalore, India and together with our law firm, FBFK Law, we're part of a network called LEI, which is a way that lawyers around the globe structure working together. So these are, in essence, our colleagues, Neil and Aravind here today. And we're going to be discussing some really interesting topic because

Aravind Mokkapati (00:27.238)
I'm going about the impact the lives who are in the hospital. I'm going to be the impact of on lives in the hospital. I'm impact of COVID-19 on lives I'm going impact of on lives of

Sarah Florer (00:50.752)
There is a lot of investment back and forth between private parties in India and private parties in the United States. So we're lucky today to have two experts on Indian &A and investment law. And we'll be hearing some pretty detailed information from them today. So welcome, Neil and Aravind. Thank you for taking the time to join us today.

Aravind Mokkapati (00:51.271)
Thank you. Thank you for having us.

Neil Mathur (01:13.45)
Thank you.

Roland Wiederaenders (01:16.547)
Yeah, Arvind and Neil, it's great to have you on and we always want to be cognizant and kind of remind our audience that whenever we talk to people in India, there's a pretty significant time difference. We're recording live here now and it's 9.25 in the morning here, but what time is it there for you all?

Aravind Mokkapati (01:26.662)
Okay. Okay.

Neil Mathur (01:37.688)
It's almost 9pm. It's late in evening but that's...

Sarah Florer (01:39.918)
You

Roland Wiederaenders (01:40.429)
So that's the interesting thing that I think our audience should know about is when you do business in India, you're gonna have conference calls early in the morning or late in the evening, either way, but you'll never be talking around noontime. But anyway, Neil and Arvin, thank you so much for being with us. It's so great to connect with people, have a personal interest in India and Sarah's got this personal connection as well.

Aravind Mokkapati (01:52.166)
I'm

Sarah Florer (01:56.919)
Yes.

Roland Wiederaenders (02:10.307)
My curiosity is really peaked whenever I'm talking with anybody that is there. And I'm interested in hearing about both of you individually, and then also give you a chance to talk about your law firm, MCM Law. So please just tell us a little bit about whoever will start, Arvind or Neil, just tell us a little bit about yourself and about your law firm.

Neil Mathur (02:36.299)
Sure, Sarah and Roland, thanks a lot for having us here. So I'll start with the law firm quickly and then I'll speak a little about myself and then I'll hand it back to Arvind. We're a Bangalore based law firm. We're about 13 years old now. We're a firm of about six partners and about 18 lawyers.

Most of the partners we have had extensive in-house experience before they came into private practice. We started out as a technology focused firm which we continue to do even now. We also do a fair bit of venture capital investment and mid-market &A.

Aravind Mokkapati (03:17.062)
.

Neil Mathur (03:28.927)
What's interesting is we earlier saw a lot of transactions from the US coming into India, but now we see a lot of Indian companies having a US presence, where they have a structure where some part of their operations are in India.

of their operations are present in the US and some of our clients are completely focused on acquiring customers in the US. So that's something that we've been seeing probably over the last maybe four or five years and we're seeing more and more of that now. So that's about our firm. My name is Neel Mathur. I'm one of the partners at the firm.

About me, well, you know, I'm a father of two children and well, other than work, I really enjoy reading a wide variety of things. It could be biographies, autobiographies, could be fiction, it could be history.

Outside of that, I would like to call myself a runner, although over the last few years the running has come down quite a bit, but I used to do mid-marathon distances very often till some time back. Over to you, Arvind.

Sarah Florer (04:47.455)
You

Sarah Florer (04:54.382)
That's by the way, Neil, that's what happens when children come along, right? The ability to stay committed to sport reduces.

Neil Mathur (04:59.25)
Yes,

Aravind Mokkapati (05:00.285)
Yeah.

Roland Wiederaenders (05:09.443)
Well, yeah, Armin, please tell us a little bit about yourself and your practice.

Aravind Mokkapati (05:14.117)
So I started off as needed suggested I started off as an announced council at a major Indian automobile manufacturer and Thereafter I spent some time there. I ended up doing some special projects there and then I moved to the US for a year do my masters in Chicago completed that

got back to India and this time landed in Bangalore. This is in 2016. And since then I've started my own corporate practice in Bangalore teamed up with an old college friend of mine who did disputes. And now both of us are here with MCM Law. So...

We're all one big gang doing corporate transactions, commercial work and dispute practice today. And at a personal level, what I love to do outside of work is I read, I read a lot and I'm an outdoors person so which I run, I cycle, I whatever it takes as long as I'm outside I'm happy.

Roland Wiederaenders (06:40.076)
That's great. I appreciate both of you guys are readers and I think, you know, attorneys are known for, you know, getting paid by the word. So the more words we have up in our head, the more money we'll make maybe. So I like that.

Sarah Florer (06:54.112)
Hahaha

Aravind Mokkapati (06:54.753)
Yep.

Sarah Florer (06:57.592)
But it's also something to note, which is something I really appreciate about India in the 20 years I've really been married to India. And that is that it's a country of readers and it's something that's highly valued. And I've always been a reader. Roland, I know you are too. And we're in a time, maybe it's a different generation, but it's something we really have to teach our kids, which is to value the written word.

Aravind Mokkapati (07:15.37)
Yeah.

Sarah Florer (07:21.366)
And to also read real books, which I know there's a huge push to do everything digitally and that's convenient, but I've always been like with my kids, you need to read real physical books because that I think if you're really a committed reader, it also helps. Sometimes you need a real book in your hand, at least for me. anyway. Well, interesting, I just wanted to make one note before we get into some more detailed information and that is that.

Aravind Mokkapati (07:41.328)
Okay. Okay.

Sarah Florer (07:46.559)
know, FBFK law and MCM law, we really have similar profiles, which is probably one reason we're both an LEI, but we're business law firms, aren't we? And we focus primarily on mid-market, &A, all the other aspects that go along with business really, but some disputes resolution as well. And I think it sounds like, you know, FBFK is a little bit, has grown a lot in the last two years, but started off just the way you all have with a few partners together.

Aravind Mokkapati (08:02.523)
It's a great way to get to your It's a great way get to know your community. It's a great way to community. It's way know a great It's a great way to It's a great way know

Sarah Florer (08:16.408)
bringing together the transactional side together with disputes. we're really kind of quite similar practices. And it's always interesting, I think, for audiences in the US to remember, to know, or to realize that everybody else in the world is pushing along just like people do here. Like we're all pretty much the same in what we're trying to go about living our lives and raising our kids and staying healthy. anyway.

Aravind Mokkapati (08:30.123)
Okay. Okay.

Roland Wiederaenders (08:45.826)
You know, I mean, it's fascinating. This is one of the reasons why India is such so fascinating. mean, English has become so widespread, but it really is a nation of, you know, a billion plus people that all speak English. so, and as we were talking before several other languages as well, but.

Sarah Florer (09:01.079)
If you speak to...

Roland and I just want to say before Neil or Arvin have to they've been speaking English longer than Americans.

Roland Wiederaenders (09:13.888)
That's such a great point.

Neil Mathur (09:15.887)
But times have really changed, so our children's generation pretty much speaks English, especially in the kind of cities that we live in, the bigger cities in India, because of exposure to... It started with exposure to television, now obviously television is relegated to history, it's on-demand content.

Sarah Florer (09:15.924)
You know.

Sarah Florer (09:21.846)
Yeah. Yeah.

Aravind Mokkapati (09:28.866)
Yeah. Yeah.

Sarah Florer (09:39.096)
Yeah.

Neil Mathur (09:39.209)
and most of it is in English. So today's kids in India pretty much speak only English. Sad.

Sarah Florer (09:46.327)
Yeah. It's one of those things that's so tricky. By the way, Roland, India is an official language of India. mean, English is an official language of India. So government is conducted in... I think... Well, this is actually an interesting legal point too, in terms of how the languages trickle down to the state government level. But I think, as I understand it, laws are written in English, I guess at a local level, maybe they're also written in the applicable state language.

Aravind Mokkapati (09:54.723)
So the laws are written in Hindi and English. That's by default and at the state level again,

Roland Wiederaenders (09:55.381)
Yeah

Sarah Florer (10:18.509)
Yeah.

Aravind Mokkapati (10:23.564)
when it really boils down to the local rules in each state, then those local rules in each state tend to be written in local language as well as English, but English being the common factor.

Sarah Florer (10:37.934)
Exactly. So I do think you can live your life in English and India, although there's always the linguistic question of whether one should do that because, you know, some of the Indian languages are some of the oldest languages in the world that are still being spoken. But it is interesting to me. Yeah.

Aravind Mokkapati (10:43.435)
Yeah.

Aravind Mokkapati (10:55.074)
The interesting thing there though is there's a lot of business, particularly considering the topic that we plan to discuss today. There's a lot of these younger businesses, particularly over the last five, 10 years. Most of the digital tools that are being built are being built also for the local language.

That's a massive trend and that helps pick up business, not just from these six, seven or 10 big cities in India, but also from the tier two, tier three cities and then the rural segment, which is the mass market in India. So you take, I mean, the easiest example is WhatsApp. So the most widespread use of WhatsApp and

Sarah Florer (11:27.856)
that's good.

Sarah Florer (11:46.21)
Yeah, of course.

Sarah Florer (11:51.65)
Huh.

Aravind Mokkapati (11:55.07)
I assume in India is not just English. It will be a lot of local language in each state as well.

Roland Wiederaenders (11:57.751)
Mm.

Sarah Florer (12:01.838)
That's good.

Neil Mathur (12:02.124)
So my parents use WhatsApp and they use that. They just change the settings to Hindi. So their messages are all in Hindi. And what's interesting is I don't know if that happens in the US, but in India you can actually remit payments using WhatsApp as well. It's linked to our United Payments interface.

Sarah Florer (12:10.136)
Huh.

Sarah Florer (12:22.592)
I'm so glad you brought that up, Neil. We can't do that as far as I know through WhatsApp, but that payment system you have is fantastic. And could you just quickly, and then we'll get into the details of the law, quickly share, because it's also a technological innovation that has done so much to give access to the banking system to every level of society, right? Varland, I think I told you about this, but let them explain.

Roland Wiederaenders (12:23.297)
Neil Mathur (12:43.82)
So that's an interesting topic we love speaking about. I mean, as you all know, India has got the largest population. It's beaten China. So India has 1.4 billion odd people and China is now a little behind.

Roland Wiederaenders (12:46.26)
no, I'm curious.

Sarah Florer (12:59.47)
Thank

Neil Mathur (13:04.68)
So a lot of people and in terms of cell phone usage, almost everybody has a cell phone. So if you look at the numbers, it's perhaps more cell phones than the number of people in the country. And the Indian government's been pushing towards digital adaption for many years now. So it started with a project where, so you all have a social security number, which everybody has. We didn't have something like that. So, you know, I think in 2000,

2012 or 2010 they pushed for what we call as what's known as Aadhaar which means foundation. So that was a project where everybody could get an identification number and which was rolled out and at the back of similar projects we now have a united payments interface so it's a government sponsored non-profit organization which holds it together and it's all of the

banks and financial institutions are part of that and using the UPI technology you could pretty much make payments at a merchant outlet you could I could send money to Arvind, Arvind could send back money to me and you could integrate that with different apps so we have Google which has so Google Pay is quite a popular app there are lots of other non-government apps which use it it's integrated with WhatsApp here so so much so that

And then of course when Covid came, know, everybody was just using

digital payments using their cell phones. And so much so that now, I went on a holiday last month around Christmas, I traveled with zero cash in my wallet. I did not use cash for those 10 days and we traveled to three different places. And one of that was a really small town, but really didn't have to use cash. And so much so that in a place like Bangalore,

Aravind Mokkapati (14:47.776)
I'm going to about the importance of of importance of of importance of of the of the importance of of importance of importance importance of the importance the importance the importance of importance importance of importance importance importance of importance of of of of importance of of of of importance importance of importance of of

Sarah Florer (14:53.464)
Mm-hmm.

Neil Mathur (15:08.468)
all sorts of businesses. mean you can go buy a coffee at the corner shop using that. You could even pay the vegetable vendor, anybody. So, good.

Sarah Florer (15:18.23)
Yeah, just to give a practical example, because I was in India at my mother-in-law's house and traditional women like my mother-in-law are quite used to the delivery culture. So the milk person comes and then the egg person comes and then the vegetable person comes and then the massage person comes. Like all day there people coming. And I think probably your parents are all the same, right? And it's maybe less with the younger people. But she's just...

paying everybody, no, it used to be all rupees, but she's just paying everybody and these are small amounts of money, like a couple hundred rupees here, a couple hundred rupees there, tip for the driver of this or the guy who brought the water or whatever. And she's just done it all through her phone and I'm observing this and it's so, it's brilliant because it takes out the need to, means you can run your life without having to think about whether you have cash or not. And I think also from the government, there are other reasons too, to try to.

regularize some of the cash usage in the country and there's some really legitimate issues to get into there which are really fascinating actually. you know, I do think it's something that in the United States would be so awesome. We use Venmo and Zelle and all this, but you already have to be registered. It's kind of a pain. It has to be linked to different email addresses. It gets complicated. And Roland, this is simply through your phone number. It's just your phone number. Yeah.

Roland Wiederaenders (16:32.516)
Wow, that's very interesting.

Sarah Florer (16:34.708)
And it's very secure and it just enables what used to be a purely cash economy to kind of continue in the same way without actually having to have the cash. And it also means that people on the lower end of the economic spectrum can more easily receive payments and be entrepreneurial really, which is helpful. India is such an entrepreneurial country, I think.

Aravind Mokkapati (16:40.863)
Yeah.

Sarah Florer (16:59.692)
you know, it rivals the US and maybe surpasses it actually, and just the general entrepreneurial energy that everybody has. Anyway, but maybe, you know, it would be fun to just get to chat with you guys about all kinds of stuff and hear about India more. And so let's hear more about the specific topic at hand, which is we wanted to talk about both sides of India, people from India who are investing into the United States and people

if you know parties from the United States many of whom actually are part of the Indian diaspora, know multi-generations away maybe, investing back into India itself and there's some pretty important rules and regulations a few differences also that are important for people based in the United States to know about. So you guys maybe you just tell us how you want to start off with it.

Aravind Mokkapati (17:55.967)
Yeah, so what I thought, what I thought where we wanted to, where I wanted to start off today is first of all, what's the, what's the current trend that we see in India, right? That we thought that's, that's a good starting point considering how the market has been over the, over the last few years and particularly at this point in time. And 2024 and 2025 have been

I mean, from a global business standpoint, it's seen certain uncertainties. It has seen certain disruptions, was in different parts of the globe affecting business, geopolitical issues, the US status system, India's relationship with China evolving and keeps flipping in one direction and then the other.

on and so forth. mean, so much has been going on, which normally you would say is not great for business because you'd want as minimal disruptions as possible. But with India, what's happened is for various other reasons than global disruptions, India's had a fairly stable economic climate. One, that's

partly down to a continued political leadership because of the 2024 elections, it's the same government that's continued. the policies, the trade policies have continued without any disruption. And the local behavior when it comes to business, that's slowly matured. So that's something I wanted to talk about.

The first leg being what is the government being doing? Because the government in India is quite active in trying to attract more investments into India. And in that direction, what the government has done is it's more and more trying to liberalize a lot of the sectors in which they want to attract foreign investment. mean, harking back to

Aravind Mokkapati (20:21.977)
older days in the early 90s, India was a very, very closed economy. There was almost no foreign investment. And from then on, there's been a steady liberalization that's happened. But what's happened over the past two to three years is the government's also starting to realize that look, what we're doing is not

sufficient, we need to liberalize a lot more and we need to bring a lot more stability to this ecosystem so that we need a lot more investor confidence. So they've taken steps towards opening up sectors into which investments can be made and they've also permitted certain types of transactions, the most obvious being

a share swap, which is fairly common in the United States. share swap in cross border transactions with India were not permitted. They were expressly not permitted. But from August, August or September 2024, they've been now given the green flag and said, you can do a share swap. And that that's made a huge difference. That's and that's come about because a lot of a lot of

Roland Wiederaenders (21:32.677)
Hmm.

Aravind Mokkapati (21:50.044)
business pressure, investor pressure, because there were a lot of transactions that the PE community particularly wanted to do. And this became a roadblock. So finally, the government relented and said, okay, we let that happen. Subject to, of course, regulatory oversight, subjective reporting requirements, all of which is fine. That's not a problem.

But the fundamental principle being that the cross border share swaps were now permitted. And it's steps like this that showed that the government is listening to the private market and willing to step into that direction. And similarly, the other flip side is the how the private equity and the VC fund ecosystem in India has sort of grown and evolved over the last five,

10 years maybe, because until maybe even 10 years ago, the access to private capital in India has been very much foreign capital. It's the amount of capital privately available other than the typical banking and financial institutions where debt capital was raised. The equity capital access was very limited in India.

So most of the transactions would be your large scale public &A's and the large scale acquisitions rather than private equity investments. And over the last five to 10 years, that's changed. The number of local VC funds, the number of local private equity funds in India have grown significantly and

some of the early entrants into the fund business into India have matured and evolved over time, particularly with the experience that they've also gained in dealing with foreign funds and looking at the lens through which they look at most of these transactions, that it's no longer purely, you know, I invest and then what is my exit? That's

Aravind Mokkapati (24:15.193)
That's no longer the approach. It's not purely, you know, a capital exit perspective. The view has changed a lot more in the sense of, let's see how big we can make this business. And the view also is further evolving now that it's no longer just founder or promoter dependent. We understand, I mean,

The funds today understand that the founders or promoters are critical at the initial stages, but at a certain point, the funds are even willing to and they choose to take strategic control over the company and start getting into that business more rather than just sitting passively as a financial investor. So because of these two trends of the government actions and the private equity ecosystem,

There's been tremendous changes in how transactions now actually take place, juggling both the legal constraints as well as investor behavior.

Neil Mathur (25:17.965)
you

Roland Wiederaenders (25:25.711)
Well, Arvin, I wanted to just comment on that. I think that that's a wonderful, really interesting information. And I just think about the securities laws in the U.S. and, you know, Sarah and I are securities lawyers really. And all we do are these little private securities deals to finance primarily commercial real estate right now. But we do operating companies from time to time and then also other investment funds, hedge funds. But one of the recurring themes on this

Alt Investing Made Easy, where we talk about private securities deals is the democratization of capital and allowing people to engage in capital formation in really flexible ways, which the U.S. securities laws really do. And it sounds like there's been a change. And I think that it's so fascinating to me. I think it would be to our audience to hear about this change in India. And really what we're talking about here, like what we were talking about before with the payment systems is

know, being able to create greater wealth for people, allowing people to access these systems for wealth creations in a way that maybe they haven't in the past. And so that really inspires me.

Aravind Mokkapati (26:40.509)
And the way that we've also seen, I mean, the involvement of the larger global funds and the larger global investors into India, that's the timing and the entry at

point at which they now getting get into Indian businesses has also evolved over time. For example, mean one of the over the last couple of years what we've also seen is the number of Indian businesses that have chosen to get listed on the stock exchange and and just prior to their public offer

Sarah Florer (27:17.262)
Mm-hmm.

Aravind Mokkapati (27:25.042)
What we also see is a lot of the local investors are taking a partial exit and letting a global investor step in at a pre-IPO round because that helps the IPO go well. Because there is a public image that look, are local investors, reputed local investors, there are reputed global investors, and that's generally good.

Sarah Florer (27:43.586)
Hmm.

Aravind Mokkapati (27:54.69)
for management at the top level. So that brings more trust into the public eye. So the entry timing at which global investors are now stepping in, that's changed.

Sarah Florer (28:08.76)
You know, that's really... Arvind, thank you for that point. I also wanted to make another point here, which is what you touched on earlier with the local investors. And this is important for people who don't know much about India to understand, and that is that there is a lot of wealth in India. There are a lot of people who have a lot of private money to deploy. Historically, that money's been made or deployed in...

Aravind Mokkapati (28:24.472)
.

Sarah Florer (28:37.294)
you know, a lot of family businesses, know, mom and pop shops that have manufacturing that grows. I mean, and now, course, technology and there's some very famous huge companies from India, you know, Infosys being one of them, as we've talked about before. But just for our American audience, I want to make the note that it's important to understand that, you know, just the sheer nominal number of dollar millionaires in India is over 100 million.

and that statistic is probably higher, that's an older statistic. And this is really significant. There is a lot of money in India that needs a place to go. And that's these early stage markets, venture capital. To me, it's all, as long as the framework in India is developing, then there's no reason why this wouldn't be thriving. And it sounds like what you're saying, Arvind, is that now there's...

Aravind Mokkapati (29:08.203)
Okay. Okay.

Sarah Florer (29:30.904)
people are realizing this is a very solid part of the Indian economy and staying with it until a longer time and then being strategic about moving from the India focus to bringing in outside investors or, you know, because eventually things need to leave the country and go global. Every country has that. So.

Aravind Mokkapati (29:49.136)
And what's also interesting is the nature of businesses that are being targeted for investment.

mean, historically, India's product to the global business was tech. I mean, the amount of tech work that gets done in India was, it was hitting top of the charts. And that's where businesses like Infosys and PCS made their money. And that's where they grew.

Sarah Florer (30:27.789)
Mm-hmm.

Aravind Mokkapati (30:30.347)
But the private equity investments in the last few years is not just tech. Of course, there's a lot of tech element and businesses are being on tech platforms and using digital tools, et cetera. But the underlying core element of the business is not just tech anymore. I mean, the funds...

looking to even take strategic control of the businesses. A lot of them are not tech. They're in the manufacturing sector, they're in the infrastructure sector, they're in the healthcare and the pharma sectors and the financial services sectors. So all of them have an element of tech, but the whole business is no longer tech alone. So the spectrum of businesses that are,

Sarah Florer (31:09.4)
Hmm.

Sarah Florer (31:24.663)
Hmm.

Aravind Mokkapati (31:29.744)
a lot of the funds, whether local or global, are willing to invest today, that appetite has grown.

Sarah Florer (31:37.997)
I think that... Sorry, go ahead.

Roland Wiederaenders (31:38.49)
Hey, Arvin, your sound is, it's okay, but maybe your microphone, I don't know if there's a way that you could get a little closer to it, wherever it is on your computer, but it may maybe help a little bit. Yeah.

Aravind Mokkapati (31:47.895)
Okay. Okay.

Sarah Florer (31:50.86)
Yeah, there was a minute there where it was like, great, your voice is really projecting. I think you were just closer to it.

Roland Wiederaenders (31:56.804)
But anyway, sorry to interrupt.

Sarah Florer (31:58.713)
that this part can get cut out. Or we'll leave it. Well, moving on. I'm really glad that you're taking the time to explain the landscape and these trends, Aravind, because I spent so much time in Dubai where it's very common to discuss these kinds of things. India, different countries in the region.

Roland Wiederaenders (32:02.64)
Sure, sure. Yeah.

Sarah Florer (32:28.354)
But here in the United States, think there's just a lot also going on locally. And so people don't always have the opportunity to hear straight from the source about how things are going in India. it's, you know, so let's talk about for a minute, like one thing Roland and I have observed, and we have clients who have these cross border &A transactions, because there is usually or often a piece, maybe we're moving forward into, you know, when you have

Aravind Mokkapati (32:44.951)
you you

Sarah Florer (32:56.298)
businesses that are structured in India and also in other countries and for example the United States and of course their tax reasons and there are all kinds of things for what really underlies how you structure the relationship between an Indian enterprise and an American enterprise and it can become complicated but also you need to access the American market and have customers in the United States. I think it's been our observation right Roland that

Many companies tend to want to have an actual American presence. And I think with tariffs going on now, we've even seen more that it's no longer sort of a rep office structure, but actual operations in the United States to sort of make it most efficient, you know, the business of the company between the two countries with the tariff regime as it is at the moment. So, you know,

Should we get into some of those details about what's involved in these kinds of structures or not necessarily what's involved in because we don't give legal advice obviously on this podcast but more what generically are the issues and I know from the Indian perspective for example if you're trying to take money, take an investor from India, you bump up against currency controls and different compliance issues that Americans are not used to having to deal with.

Aravind Mokkapati (33:59.734)
Okay.

Sarah Florer (34:21.838)
And likewise with India and going into India, there's a lot of tax issues to be aware of and restrictions that maybe even the people who are originally from India, however many generations ago, or maybe used to the American system with less restrictions in that regard.

Aravind Mokkapati (34:43.051)
Definitely. mean, that's for me a good segue into what I really wanted to talk about. So it's a simple question. How do you invest into India?

Sarah Florer (34:50.902)
great.

Aravind Mokkapati (34:58.997)
Right now that the overarching. The overarching principle is the overarching structure is governed by the Foreign Exchange Management Act. Originally passed way back in 1999, keeps evolving and and that legislation gives the Reserve Bank of India and

and the Department of Promotion of Industry and Internal Trade. So it gives these two bodies the authority to set up the detailed regulatory structures. So RBI enforces the foreign exchange law in India and keeps releasing the

the foreign exchange manual on a yearly basis, including because it keeps, RBI keeps releasing circulars and notifications and press notes and different types of different manners of documents, all of which constitutes law. And on a yearly basis, they put everything together and say, this is the consolidated manual.

But until we release an angel, you have to live with each of these different circular notifications. So it's our job as lawyers just to keep abreast of what's being said. in one way, as I understand, I mean, if an SEC commissioner makes a public statement somewhere, I understand that's law. But so we just have to keep abreast of it.

Sarah Florer (36:54.666)
It's complicated. It sounds like it's a lot.

Neil Mathur (36:58.136)
up.

Aravind Mokkapati (36:58.247)
It is, can, the issue with foreign exchange regulation in India is it is definitely a complex set of regulations, but it is coordinated as well. The problems arise when the law always plays catch up with the business and the different structures and the different creative ideas.

that businesses and business people come up with. And then it's a question of picking up that new structure or a new idea and make it fit into one of these squares and circles. And that's where the challenges are. But from an overall landscape point of view, the primary set of regulations that we deal with are what we call as the foreign direct investment.

The FTI regulations in India at an overarching level are fairly simple.

The FBI regime in India tells us that you can invest into certain entities and you cannot invest into certain entities. Now, how it structures it is first, there's a list of sectors into which foreign investment is absolutely prohibited. So the simple example, businesses that are into gambling, sports betting, lottery businesses.

atomic energy. So certain businesses that are specifically listed, no foreign investment whatsoever. Then there are businesses into which foreign investment can be made under what is locally called here, colloquially called here as the automatic route, which means the government, the RBI has set up, for example,

Neil Mathur (38:38.82)
tobacco.

Aravind Mokkapati (39:04.849)
the IT services sector. They list the IT services sector and say 100%. That means that entity in the IT services sector can take foreign investment up to 100 % of its entire equity capital. But there are other businesses, let's say the insurance business. Until recently, it was 74%. So that's the maximum.

So the remaining 26 % had to be local investment only. And you would have these whole lists of a large list of sectors and against each sector, the specific percentage would be put out. And at this point, a majority of the sectors, the government has permitted 100 % of foreign direct investment.

Roland Wiederaenders (40:00.809)
That's very interesting.

Aravind Mokkapati (40:01.299)
And that list keeps evolving. mean, in fact, as I touched on in the opening section, as recent as a year ago, the government had opened up for the sector, for example, the space sector, because the government understands now that there's a lot more investments coming in. There's a lot more interest in the space sector with manufacturing satellites.

I mean, the satellites going up and coming back down. So they've identified certain areas in the space sector where they permit 100 % foreign investment and certain sectors where they permit 49 % and 74 % and so on and so forth. And the insurance sector is another interesting one. The insurance sector notoriously has been a highly guarded sector. It is a highly regulated sector in India.

case. And foreign investment into the insurance sector was not originally was not permitted. Then it moved up to 49. A few years ago, moved up to 74%. And since last year, 100 % investment into the insurance sector is now permitted. that I mean, the government's rationale there also was, we're okay with the foreign investment now because there's a lot more maturity in the market.

Sarah Florer (41:18.509)
Wow.

Aravind Mokkapati (41:29.647)
In any case, the insurance sector is heavily regulated by a separate insurance regulator. any potential for wrongdoing, et cetera, is all anyway managed at the sectoral regulator standpoint.

Sarah Florer (41:50.605)
You know, I'm sorry, go ahead. No, I was just going to say just to put it in perspective for any American viewers, you know, we're not used to this concept of foreign investment being regulated at all by the government. And there are regulations, there are restrictions, there are always things that are lurking in the background, but it's not done as a comprehensive regime, think. Roland?

Aravind Mokkapati (41:50.608)
And then, yeah, sorry.

Aravind Mokkapati (42:04.198)
Yeah.

Roland Wiederaenders (42:14.032)
Well, you know, I mean, but we're seeing some of it more recently, right? The SBA has imposed restrictions on foreign ownership. There's, you know, the politically or the, you know, the countries like ostracized North Korea. I guess the other ones, certain, you know, prohibition against ownership from there as well. So.

Sarah Florer (42:18.039)
Yeah.

Aravind Mokkapati (42:28.754)
you Okay.

Roland Wiederaenders (42:38.182)
I think we see kind of trends to be maybe a little more protective, you know, for sure here in the U.S. with all the anti-immigration policies that are adopted. mean, it's a real shame, honestly, but it seems like it's going in the other direction for India.

Sarah Florer (42:44.397)
Yeah.

Aravind Mokkapati (42:49.681)
Okay. Okay.

Sarah Florer (42:57.816)
Well, and I think just to step back and not to get derailed because we got a few more things to discuss and we don't want to keep you all the whole evening. But it is natural for a country that was going through intense development to have to be protective because otherwise it would just be overtaken by the foreign parties that have way more money. And so what I think I hear you saying, Arvind, is the government is feeling the strength of the country as a whole, which is we can handle

Aravind Mokkapati (43:11.281)
Yeah. Yeah.

Sarah Florer (43:27.606)
We have enough local strength, have enough regulatory fortitude where it matters to be more open. And that's such a great development because India has this unlimited brain talent pool. And with no sense of going anywhere just because of the cultural values on education, reading, like we talked about before, all of those positive things.

Aravind Mokkapati (43:39.312)
Okay.

Sarah Florer (43:51.809)
And so I think it's really wonderful that as a country, it's becoming more of a place. We have so many friends who are perfectly thrilled doing wonderful in their careers, not needing to leave India, maybe going outside for education, which everybody should do, go outside of their own country for some education. And I think it's a real testament to the strength of the country as a whole and the people from India that now,

Aravind Mokkapati (44:02.704)
.

Sarah Florer (44:20.174)
They're moving very quickly into a very advanced state. And I noticed when I was a couple of years ago in Hyderabad at the airport, which has doubled in size and is a new airport from the first one I went to many, many years ago. Now it's not new anymore, but it's so modern the way all the infrastructure is looking, all this investment into infrastructure. Soon enough, going to the major Indian cities will look no different than going to Singapore or going to any of the other Asian cities that are highly developed.

Aravind Mokkapati (44:29.841)
Okay. Okay.

Sarah Florer (44:49.748)
It's a perspective I want to communicate here just as a basic threshold level of what we're talking about, which is we've got very sophisticated parties from India who can invest into the United States and we've got very sophisticated parties in India ready and able to receive money and investment from the United States.

Aravind Mokkapati (45:11.704)
That's absolutely right. what's important to also consider here is the states at which most of these economic markets are in India, vis-a-vis

the securities markets in the US. We're at different states in our growth and in our development levels. The securities markets in India are relatively nascent in comparison with the US market. So a lot of the issues, a lot of the sort of concerns surrounding

investments and protecting a minority investor, protecting an unsophisticated investor. A lot of those issues that the US had seen a few years ago, maybe a few decades ago, we're looking at a lot of that today. It comes as a double-edged sword because as much as a regulator knows what's coming,

And you know that there's precedent set in the US, in the EU and other markets that the regulator can learn from and say, okay, this worked and this didn't. At the same time, there are bad elements in the market who also learn. So it's always a balancing act, but the regulator in India now understands that. And earlier the word that you used Sarah,

that's absolutely right. The confidence and the fortitude of the regulator in India, that's improved. And because of that, the regulator is more confident and more willing to open up a lot of these, liberalize a lot of these sectors and willing to let the foreign investments come in because they know they can handle it.

Sarah Florer (47:02.401)
Hmm.

Sarah Florer (47:21.058)
Yeah, I think that's a great point. Sorry, go ahead.

Aravind Mokkapati (47:22.348)
Now, and the last portion which I wanted to cover there is there are some sectors that require government approval, prior government approval. So, and then that's another element where the government has taken positive action in the sense that even if government approvals are required earlier, getting the government approval was a mammoth task. would take a year.

Sarah Florer (47:32.355)
Mm.

Aravind Mokkapati (47:51.951)
year and a half, maybe two years, and maybe you won't get it. But that's not the case anymore. They've set up separate digital platforms where you file your application and all submissions are done digitally, et cetera. that, I mean, what they call as a single window clearance systems in India, the idea being you don't run pillar to post, which was

Sarah Florer (47:59.885)
Mm-hmm.

Aravind Mokkapati (48:16.514)
which was what used to happen. You had to run from one department, get your approvals, go to another place, get your approvals and so on and so forth. And now you're saying you don't have to do that. File your application online and we deal with it at a single point of, as a single point of contact. and things move a lot, a lot easily, a lot more efficiently. there are sectors where it's, it's a lot more difficult in any case.

Sarah Florer (48:23.672)
Hmm.

Sarah Florer (48:29.25)
Hmm.

Aravind Mokkapati (48:46.51)
But at least there's a lot more transparency, lot more clarity in how things are done. And that brings investor confidence. You know what you're getting.

Sarah Florer (48:51.022)
Hmm.

Sarah Florer (48:56.93)
Yeah.

So, Arvind, I don't know where we are in our planned schedule for talking, but we're at about 50 minutes and I wonder if maybe we need to have another time to talk about other topics. But is there anything that you'd like to say or Neil, also you? I know Arvind is the corporate specialist and Neil is, you know, your focus is in technology as I understand it, not to say you're not a corporate specialist, but...

Aravind Mokkapati (49:12.238)
Okay. Okay.

Sarah Florer (49:26.67)
Is there anything that like if you could give us like three more main points to share with the audience and then if you know if it merits it maybe we'll have a chance to talk again and continue our conversation because I do think there's a lot to be said here about this US India connection and and I'll take that offline and see if maybe there's something we want to do additionally to this. I would like to. But if you you if you had if you're pressed into three more final points about the topic as a whole what would you say?

Aravind Mokkapati (49:57.519)
The first one is how investments from India going out are now looked at. So that's significantly changed.

Sarah Florer (50:04.46)
Yeah.

Aravind Mokkapati (50:08.873)
In fact, 2022 was when the Indian government has decided to overhaul the entire regulatory regime, rewritten all the laws, whatever existed before have now been repealed. And in place of that, we now have an entirely new overseas investment regime, which has brought a tremendous amount of clarity in what is permitted, what is not permitted,

Sarah Florer (50:30.643)
wow.

Aravind Mokkapati (50:38.413)
And even for overseas investments that are permitted, what is needed for the government? mean, what pricing guidelines do you follow? What terms of investment can you agree to and can you not agree to? So a lot of these structures, which were an unknown quantity until 2022, which is why there was

a real dirt of investments going outside India. That's improved over the last two or three years, particularly for a certain segment of investors in India that are termed as the alternative investment funds, AIFs, which are a regulated fund. But a lot of these regulated AIFs

are investing into entities that are set up in the US and whether and typically a lot of these a lot of these businesses are set up in the US by someone that has an India connection. So a lot of the management is sitting in the US. The operations are running out of India as a subsidiary and in and the fund wants to invest at the management level and not at the India operations level.

Sarah Florer (51:46.157)
Hmm.

Aravind Mokkapati (52:03.14)
And a lot of those routes have been cleared. So there's a lot more of overseas investments that are now going out because those structures have been clarified. second issue that I wanted to cover is the terms relating to share swap and the terms relating to merging a foreign entity with

Sarah Florer (52:12.174)
Mm hmm. We we've seen that. Yeah, we've seen that.

Aravind Mokkapati (52:33.034)
an Indian entity and with the resulting entity being an Indian entity, those two specific scenarios have been addressed very well. And the immediate result of that is what we now see in India is a lot of the businesses that were originally set up as hold calls in the US, hold calls in

in Singapore are now coming back into India. And then with a specific point of view that the exit opportunities in India, whether it is exit by sale to a local investment fund or exit by way of IPOs in India, which in the last couple of years has been a massive trend and the public markets in India, there's a growing appetite to invest into these entities.

that are listing afresh. So that possibility has become real because only and only because about August, September, 2024, these two transaction structures were formally approved in India without further need for government approval. So these were automatic approvals. As long as you follow the rules, you're good to go. And that's made life a lot easier.

Sarah Florer (53:50.893)
wow.

Sarah Florer (53:58.83)
wow.

Sarah Florer (54:02.178)
That's really incredible. I mean, we could continue on this, but just as one quick observation about that, Arvind, I think prior to say 2022 or maybe 2020, based in Dubai, there are a whole lot of things going on to try to figure out how to mimic structures and how to, you know, run businesses and do different things to take advantage of foreign money and foreign structures and foreign markets while trying to get around

Aravind Mokkapati (54:27.148)
Yeah.

Sarah Florer (54:31.746)
whatever restrictions were local. So it's actually so encouraging to hear. Not surprising to me at all because I do think, again, I say this all the time, there's so much brain power in India. It's just people need a chance to work everything out and then very smart decisions will be made. There's a history of other stuff like every country has that had maybe is being kind of overcome a little bit.

Aravind Mokkapati (54:56.523)
Okay.

Sarah Florer (55:00.11)
But anyway, but in Dubai there was a whole lot of work with people from various communities in India, businessmen, business communities and whatnot, who were mirroring businesses through the Middle East, through the United Arab Emirates essentially, and hopefully, you know, doing that in the best way possible. But now it sounds like, don't need all of these different kinds of structures. You can just directly do business in the country.

Aravind Mokkapati (55:26.617)
Yeah. That's an entirely different discussion. But I mean, the last issue though is, I mean, we've talked a lot about how the law is structured here in India, but

Sarah Florer (55:26.85)
you know, in a mature and healthy way, let's say. And also maybe the government can collect some tax revenue from that as it should, right? So we can talk about tax another time.

Aravind Mokkapati (55:50.783)
The easier bit is the documentation standpoint, how shareholder agreements are prepared. mean, except catering and customizing to Indian regulatory requirements, most of the other terms in the transaction documents are just the same, whether it is the US and we've seen UK transactions as well and India. Most of the terms are just the same.

We talk the same language in terms of your conditions precedent, the conditions subsequent and the closing actions take place and what representations of quantities are asked for and what indemnities are asked for. A lot of that is just the same. So there's a lot of familiarity even for investors and not just funds. When I say investors, I network investors as well. There's a lot of familiarity.

Sarah Florer (56:46.158)
Yeah.

Yeah.

Aravind Mokkapati (56:48.883)
So if someone's done an investment in the US and is now looking to invest into India, they're not looking at a different language. It's mostly the same.

Sarah Florer (56:56.856)
Yeah. And I just want to add here, and this is so basic for you guys, but it's necessary to be said. The United States and India share a common legal history coming from the United Kingdom, which is the common law system. We don't just speak the same language and use the same terminology with tiny variations that are easy to figure out. We actually understand the same principles, the same principles about

Aravind Mokkapati (57:13.045)
Yeah.

Sarah Florer (57:23.768)
contracting, what it takes to make a contract, the same principles about basic corporate structures. Again, maybe slight variations in words for things, but the concepts are, if not identical, nearly identical with tiny variations and for various reasons. So this is really important to understand. India was a common law system before the United States was.

And of course it evolved slightly in its own way, although I think very, India does not differ from the UK nearly as much as the US and the UK differ. And I know this because if you're an Indian attorney in the old days, at least seeking to become a UK solicitor, the process is very simple. Americans, we had to take a lot more tests when I became a UK solicitor. We had a lot more hurdles to jump through than my Indian husband. So, but in any event, I do think this is important for people to understand.

Aravind Mokkapati (57:53.149)
Yeah.

Yeah, yeah.

Sarah Florer (58:14.146)
That is that, you know, everything about us is familiar because it comes from the same place, has the same history.

Roland Wiederaenders (58:25.109)
Well, guys, I think we should probably wrap things up. We're almost at an hour and we want to be respectful to our audience. So, guys, thank you so much for being guests on Alt Investing Made Easy.

Neil Mathur (58:38.073)
Ciao, pleasure.

Sarah Florer (58:38.102)
Yeah, it's wonderful to have you. Yeah, and also lovely to get to know you better. So in any event.

Aravind Mokkapati (58:43.641)
Thank you so much. Thank you for having us. And it's been lovely talking to both of you as well.

Sarah Florer (58:51.482)
Great, great. thanks everyone for joining us today on Alton Vesting Made Easy. We hope you liked this episode. If you did, please like and subscribe to our channel and stay tuned for more probably about India coming in the future. And we'll see you next time.

Roland Wiederaenders (59:06.825)
And remember, take aim with your alternative investing strategies.