The Finance Ministry has called a meeting of leading market participants on Monday to discuss ways to boost overseas investments in the capital markets.

“Economic Affairs Secretary Arvind Mayaram will chair the meeting. The agenda broadly includes FIIs’ (foreign institutional investors) investment limit and provisions in debt instruments and review of Qualified Foreign Investor (QFI) mechanism,” a person familiar with the development told Business Line.

He also said that the meeting might also discuss other issues related with capital markets. The meeting has been called within days of the Government raising the FII limit in debt instruments.

On November 30, the Finance Ministry announced providing two new windows of $5 billion each for long-term foreign investors.

These new windows will hike the limit for FII in domestic debt instruments to $75 billion. These investments can be made in Government, corporate and infrastructure bonds. While the new $10-billion windows will have no restriction on residual maturity, some of the remaining $65 billion has tenor or lock-in restrictions.

Qualified Foreign Investors

The meeting will also discuss various issues related to the QFI mechanism. Introduced in the beginning of the year, the scheme allows a foreign individual, association or trust to invest in equity, debt and mutual funds. The Government has permitted QFIs from 45 countries (including the Gulf) to invest here.

However, this scheme has not seen much inflow. According to data available on the Web site of NSDL, up to December 5, QFIs invested in 20 companies with indicative value of little over Rs 50 crore. Even in corporate debt, up to November 1, these investors put just Rs 400 crore against overall limit of Rs 5,526 crore ($1 billion).

A leading market participant said that lack of clarity on tax provisions could be one of the reasons for this subdued response.

“People know that there will be withholding tax, but nobody knows the process of imposing tax, the process for claiming refund and the requirement of a Permanent Account Number (PAN). A detailed circular is awaited from the Tax Department,” he added.

QFI along with FII investment are crucial for the Government to curb the current account deficit (CAD).

The Department of Economic Affairs, in consultation with the RBI, has projected a CAD of $70.3 billion in 2012-13 or 3.7 per cent of GDP. It was a record 4.2 per cent in 2011-12.

shishir.sinha@thehindu.co.in

(This article was published on December 6, 2012)
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