Govt engages with foreign investors on key concerns

Mumbai: The Centre has sought the inputs of bulge-bracket overseas funds on boosting dollar inflows, with top North Block officials leveraging technology to virtually reach out to key offshore financiers and custodian banks in the second week of June, two industry sources aware of the development told ET.The issues discussed feature prominently on the wish list of overseas funds: Allowing foreign portfolio investors (FPIs) to use existing structures to make FDI investments, streamlining the taxation for government securities under Fully Accessible Route (FAR) and allowing NRIs to invest via portfolio investor route.“The discussions were around how to bring sustainable foreign capital into India amid global volatility,” said a person with direct knowledge of the matter. “Any improvements to the existing foreign investor norms would be welcomed by the industry since that will improve investor confidence.”These top-level engagements came after India witnessed steep dollar outflows during the early part of the year. Overseas investors have net sold domestic equities and debt worth Rs 1.1 lakh crore during 2020 so far, data from depositories showed.Currently, FPIs seeking to make investments through the foreign direct investment (FDI) route need to create a separate structure and even open different bank accounts. The proposal is to allow FPIs to use the existing structure for FDI investments.There were discussions on the modalities needed to include those securities, notified by the Reserve Bank of India (RBI), in the global bond indices. India has been looking to get included in the global bond indices to bring in at least $20-30 billion worth of funds into Indian debt securities.However, the country places limits on purchase of bonds by foreign investors, which has prevented its inclusion in the league. Globally, these indices include only those countries that impose few or no restrictions on buying and selling.The government had launched FAR bonds in March. In these bonds, FPIs are able to buy without any limits. Government securities of 5-year, 10-year and 30-year tenor have been placed under the FAR list so far with effect from FY21.“The only hurdle now is capital gains tax and it was discussed if the government could levy some alternative transactional tax for FPIs instead of capital gains,” said another person cited above. “That would take our debt securities one step closer to being listed on global indices.”During the meetings, the issue of allowing greater participation of NRIs was also discussed. It has been nearly two years since the government floated a proposal to allow NRIs to invest in Indian markets through the FPI route. But the proposal is yet to be implemented due to various regulatory concerns raised by the RBI.Under the new FPI regime, even foreign individuals can invest through the FPI route. However, individual NRIs still must go through the Portfolio Investment Scheme (PIS) route of RBI.

from Economic Times https://ift.tt/2Z9p3Fo