The Hindu Business Line : Freedom for foreign corporates

Overseas companies have moved closer to raising money in the Indian market with the Securities and Exchange Board of India releasing the eligibility criteria for issuers of capital and investors. But the moot point is would they want to at this point of time. Historically, even corporations whose products have a transnational presence have tended to stay close to the home market for their capital needs. Studies in the United States have shown that an average firm had no more than three overseas listings.

Since the US, Europe, Japan and Hong Kong, to a limited extent, dominate the capital market activity worldwide, India's place in the sun would be a while coming. Further, the equity culture is still evolving and the percentage of direct and indirect ownership of equity in household financial savings is less than 5 per cent of the total. In the circumstances, the new liberalised framework would be constrained by the quantum of money that households put by for such a purpose. At best non-resident Indian entrepreneurs with business interests in India may use the rule to raise money to finance their operations. However the freedom to local investors should not be seen from the perspective of whether it could alter capital market activity in the short term. . Rather, the issue should be whether India's macro economic fundamentals will deprive them of the freedom to invest should such opportunities arise. Judged thus, there is little justification for denying them this privilege.

The Reserve Bank of India is already sitting on a huge pile of foreign exchange. While there is no consensus on a safe level, the burgeoning surplus is fast becoming an embarrassment of riches. To compound matters, the RBI is also committed to a policy of intervention to ensure relatively stable conditions in the currency market. Letting overseas corporates raise money in the Indian market could generate a counter pressure by creating a reverse flow of dollars. Also, the Government has for some time now been talking of introducing `capital account' convertibility, a euphemism for resident Indians to pick up assets abroad. The decision on overseas corporates could be seen as a calibrated approach to achieving such an outcome. SEBI is understandably approaching the issue with caution. It would for now confine this freedom to institutional investors. This is a welcome first move. Further opening up of this market can be considered as the Indian economy acquires greater resilience.