Finmin committee on Foreign Investment in India

Finance Ministry has floated a new committee to study foreign investment in India.

  • To review the existing policy on foreign inflows, other than Foreign Direct Investment (FDI), such as 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 and suggesting 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. 
  • 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. 
  • To study the arrangements relating to the use of Participatory Notes and suggest any change in the policy if required from KYC and other point of view. 
  • To reexamine the rationale of taxation of transactions through the STT and stamp duty. 
  • To review the legal and regulatory framework of foreign investment in order to identify specific bottlenecks impeding the servicing of these financing needs. 
  • To suggest specific short, medium and long term legal, regulatory and other policy change; in respect to foreign investment keeping in view of the suggestions expert committee reports such as the Committee on Fuller Capital Account Convertibility, the Committee on Financial Sector Reforms and the High Powered Expert Committee on Making Mumbai an lnternational Financial Centre.

I don’t understand but there is no member from RBI. Why should this be? I think I already know the recommendations of the committee (don’t ask me why). There would be 2 scenarios:

  1. The committee would go all out on opening India’s shores to all kinds of capital, remove all restrictions, remove RBI’s supervision over financial markets, RBI should adopt inflation targeting framework, Mumbai should become an international finance centre (like Iceland, London) etc. It would be centred on how bad our financial system regulation is and we need to adopt these changes else we are doomed. It would add it is a mistake to think since we have largely avoided the financial crisis, that we don’t revamp the financial system. Let’s do it all real fast. The criticism would be mainly on RBI for keeping such a tight control on financial system.
  2. The committee report is going to be cautious about the volume of capital inflows in the country. India should invite capital flows but should but with some checks in place. It would say we should learn lessons from the ongoing crisis and not think all capital flows are necessarily good. It would instead suggest incremental changes.

Some people would ask, so what is different and what is new? This is the nature of all committee reports w.r.t. capital flows. Well, nothing is new. But this is how things usually are.

If the second version goes through, it is likely to be followed by dissent notes from a few members who would vote for the first version. The dissent notes are going to be highlighted by the media as somehow most people in media feel the first version is the only model.  

So let’s see how it goes. It is going to be tabled in 4 months from now. I hope I am all  wrong about this one. And we see some progress.

3 Responses to “Finmin committee on Foreign Investment in India”

  1. Finmin committee on Foreign Investment in India « Mostly Economics Economic Finance news Says:

    […] Read the original here:  Finmin committee on Foreign Investment in India « Mostly Economics […]

  2. » Finmin committee on Foreign Investment in India « Mostly Economics Says:

    […] more: Finmin committee on Foreign Investment in India « Mostly Economics Categories: Investment Tags: existing, existing-policy, fdi, foreign, foreign-direct, […]

  3. Gundosckz Says:

    Aloha!lkyf! lldae udtou

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