High level group suggests rationalisation of foreign investment norms

According to a high-level expert group, foreign investors should be allowed to trade as freely as local investors. It goes on to suggest sweeping changes to make India a more foreign capital friendly destination.

Headed by UTI Asset Management Company chairman U K Sinha, the group proposes scrapping of distinctions between various classes of offshore investment entities - foreign institutional investors, foreign venture capital investors, foreign private equity investors and non-resident investors. Instead the group says a single category of Qualified Financial Investors (QFI) should be introduced.

If the proposal is accepted by the government, it would allow foreign nationals to open demat accounts, trading accounts and bank accounts for investing in Indian stocks and bonds. This would mean, global depository participants would need to meet higher capital requirement and clear a detailed fitness test as specified by the market regulator.

The idea is to make life easier for foreign investors and to cut the cost of equity capital for local companies. As per the proposals released by the ministry for public comments, the government proposes to put an end to the practice of treating foreign institutional investments (FIIs), foreign venture capital investments (FVCIs) and non resident Indians (NRIs) as distinct investor classes.

From a regulatory point of view all such investors will be treated on par. The proposals however, exclude foreign direct investment.

The group has also proposed the setting up of a Financial Sector Appellate Tribunal (FSAT) or alternatively, an enlargement the scope of Securities Appellate Tribunal to hear appeals on all aspects of regulation related to foreign capital inflows. Under the Foreign Exchange Management Act the RBI enjoys unqualified discretionary powers when it comes to taking capital control measures. The working group wants the regulators to assign specific reasons for such measures whenever they are taken with recourse available to investors to appeal to the SAT or the proposed FSAT.