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Liberalization of norms for foreign portfolio investors (Relevant for GS Prelims & Mains Paper III; Economics)

Foreign investors who have been fleeing the country since the Union budget presented early last month have something to cheer about finally.

On Wednesday, the Securities and Exchange Board of India (SEBI), based on the recommendations of the H.R. Khan committee, eased several regulatory restrictions which were applicable on foreign portfolio investors (FPIs).

What are the measures taken?

  1. SEBI has simplified the registration process for FPIs by doing away with the broad-based eligibility criteria, which required a minimum of at least 20 investors in a foreign fund.
  2. FPIs can now also engage in the off-market sale of their shares with fewer restrictions.
  1. Further, SEBI has allowed entities registered at an international financial services centre to be automatically classified as FPIs.

           This might help foreign investors bypass some of the restrictions.

  1. Mutual funds with offshore funds too can invest in India as FPIs to avail certain tax benefits now.
  1. Central banks that are not members of the Bank of International Settlements are also allowed to register as FPIs and invest in the country under the new norms.
  1. Smart cities, along with other urban development agencies, will now be allowed to issue municipal bonds to raise funds for development.

These measures to cut red tape will help lower the regulatory burden on investors, globalise India’s financial markets, and aid the growth of the broader economy by increasing access to growth capital.

Why did SEBI take this measure?
It is said that SEBI’s move on Wednesday was motivated by the recent flow of funds out of India’s capital markets. Capital in excess of ₹20,000 crore has left Indian shores in the last few weeks after Finance Minister Nirmala Sitharaman’s budget decision to increase taxes on FPIs.

(Source:https://www.thehindu.com/opinion/editorial/new-norms-on-regulations-for-foreign-investors/article29224669.ece)



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