The Hindu Business Line : ‘Scrap limits on foreign portfolio investments’

New Delhi, April 7 The existing ceilings on foreign portfolio investment in companies should be scrapped and foreign investors must be treated like local shareholders, a draft report of the high-level Committee on Financial Sector Reforms (CFSR) has suggested.

The Planning Commission-appointed panel, headed by Dr Raghuram G Rajan, former Economic Counsellor and Director of Research at International Monetary Fund, has also made a case for simplifying the registration requirements on foreign investors.

“One transparent approach would be to end the foreign institutional investor (FII) framework for investment in equities and, instead, allow foreign investors (including NRIs) to have direct depository accounts.

Distinctions to go

The distinctions between FIIs, NRIs and other investors could also be eliminated, with the intent being to eliminate any privileges or costs they may experience with respect to domestic investors”, the draft report placed on the Planning Commission Web site said.

Official sources said that the draft report has been put out to elicit views of experts and the public.

After factoring in the feedback, the final report is likely to be submitted to the Government by end-June this year.

Tough to monitor

As part of its recommendations on the capital account, the committee suggested that the existing restrictions on capital inflows based on end-use of funds be removed. “These do not serve much purpose anyway, since they are difficult to monitor”, the draft report said.

The committee has also suggested that restrictions on outflows by corporates and individuals should be removed. “There are already few restrictions on these outflows; but formal removal of controls , easing of procedures and elimination of the need for permissions, as well as a strong push to encourage outward flows would send a strong signal that the government is committed to increased financial integration and the policies needed to support it”, it said.

All these steps, the committee felt, would “essentially formalise the existing de facto arrangements and remove impediments that serve no substantive purpose in terms of economic efficiency or macro management”. These changes could be implemented over a horizon of 3-6 months.

In terms of measures that could be implemented over a 12-24 month period, the committee has called for the removal of restrictions on inward foreign direct investment (FDI), with a narrow exception for national security considerations.

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