FDI far superior to ADRs

Updated on: Feb 06, 2011

The government seems to be considering encouraging ADRs to make up for the fall in FDI. What is your take on this?

Manish Randhawa, Ludhiana

I think while there is nothing wrong in accessing the American investors for equity through the American Depository Receipts (ADR) route, it cannot position itself as a substitute for Foreign Direct Investment (FDI) inasmuch as, for one, the American regulators especially the SEC are not likely to roll out the red carpet for Indian companies and for another ADR/GDR is good only for those Indian companies which while needing foreign capital are confident of their own technological and managerial strengths. FDI, all said and done, is the best form of foreign investment---it brings state-of-the-art technology if FDI limits are high or none at all, employment levels improve and government also gets more revenue from taxes both direct and indirect—for a developing nation. ADR/GDR obviously cannot bring foreign technology so crucial to catch up with the world in many areas. Yes, it has its use for those Indian promoters who fear foreign interference so common in FDI inasmuch as ADR/GDR holders do not enjoy voting rights unless they get the underlying shares released.

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Published on February 06, 2011

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