by Moiz Mannan
Overseas investors, including non-resident Indians (NRIs), will now have to face fewer policy hurdles, and individuals from seven more countries, including Qatar, will now find it easier to participate in the Indian capital markets.
After major reforms in the FDI (foreign direct investment) policies, India’s Finance Minister, P.Chidambaram, stressed there still was the need to “re-energise” the capital markets.
The Securities and Exchange Board of India (Sebi) quickly followed up his remarks with a proposal to simplify the investment process for overseas entities, including NRIs, by revisiting a two-year-old report by the Working Group on Foreign Investments in India (WGFII). The group was set up in November 2009 by the government with a view to rationalising the present arrangements relating to foreign portfolio investments by Foreign Institutional Investors (FIIs)/ Non Resident Indians (NRIs) and other foreign investments like Foreign Venture Capital Investor (FVCI) and Private Equity entities etc. The group was to look at various types of foreign flows and generate recommendations to Government.
Among its terms of reference was to review the existing policies and suggest rationalisation of the same with a view to encourage foreign investment and reducing policy hurdles in this regard while maintaining the Know Your Customer (KYC) requirements. It was also to identify challenges in meeting the financing needs of the lndian economy through the foreign investment. Foreign investment for this purpose to be understood broadly and can include investment in listed and unlisted equity, derivatives and debt including the markets for government bonds, corporate bonds and external commercial borrowings. Further, the panel was asked to review the legal and regulatory framework of foreign investment in order to identify specific bottlenecks impeding the servicing of these financing needs. The working group presented in report in 2010 in which it recommended a major overhaul of the regulatory framework. It proposed a structure where foreign entities could start investing in the domestic market without setting foot on Indian soil.
The panel, headed by UTI Mutual Fund chairman U K Sinha and consisting of members from the ministry of finance and SEBI, also proposed doing away with different categories like foreign institutional investors (FIIs), foreign venture capital investors (FVCIs) and non-resident Indians (NRIs).
Significantly, the working group had suggested that all the above categories of overseas investors be merged into a single class called ‘Qualified Foreign Investor’ which, it envisaged, would be a “single window for registration and administration of portfolio investment regulations”. The report further recommended replacing the Sebi FVCI and FII regulations with a new QFI regulation. However, when it came to implementation, instead of doing away with the various routes in existence, the government introduced the QFI route in addition to the others. Thereby, it created one more category which resulted in more fragmentation and confusion, contrary to what the working group had envisaged.
Now, it seems the government is trying to get back on the track suggested by the working group two years back. At a board meeting last week SEBI decided to prepare draft guidelines in this regard with an aim to make uniform rules for different classes of foreign investors such as FIIs, NRIs, Foreign Venture Capital Investors (FVCIs) and QFIs (Qualified Financial Investors).
According to agency reports in the media, the regulator also decided to relax rules regarding the debt limit allocation mechanism for FIIs. With effect from January 1, 2014, FIIs shall be allowed to re-invest during the calendar year to the extent of 50 per cent of their debt holdings at the end of the previous calendar year. Within the FII debt limit the unutilised limit in respect of Corporate Debt infra long term bonds category may be availed by the FIIs/Sub Accounts without obtaining prior Sebi approval till the overall FII investments reaches 90 per cent of the limit. Individuals from 45 countries are currently eligible to invest in India as Qualified Foreign Investors. This list will now be expanded to 52 countries, and residents of seven countries - Argentina, South Korea, Turkey, Kuwait, Qatar, Ireland and Latvia - will be allowed to invest through the QFI route. Reports said SEBI will enter into bilateral agreements with the regulators in these countries.
The Peninsula
