With a view to rationalising the present arrangements relating to 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 etc., the Government has decided to set up a working group to look at various types of foreign flows, which are taking advantage of arbitrage across the respective stand-alone regulations and generate recommendations to Government. The working group will consist of members from the Government, the regulators and the private sector.   The details of composition of working group and the office order is available at  http://finmin.nic.in/ (in the recent updates column) and  http://www.nipfp.org.in/nipfp-dea-program/misc.html

Following are the terms of reference of the working group :

i.         To review the existing policy on foreign inflows, other than Foreign Direct lnvestment (FDl), such as foreign portfolio investments by Foreign lnstitutional lnvestors (Flls)/ Non Resident lndians (NRls) and other foreign investments like Foreign Venture Capital lnvestor (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.

ii.        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.

iii.      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

iv.      To re-examine the rationale of taxation of transactions through the STT and stamp duty.

v.       To review the legal and regulatory framework of foreign investment in order to identify specific bottlenecks impeding the servicing of these financing needs.

vi.      To suggest specific short, medium and long term legal, regulatory and other policy change; in respect to foreign investment keeping in view the suggestions of 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 International Financial Centre.

vii.    Any other matter the working group may consider relevant.

Comments of industry associations, bodies and individuals on the issues involved are invited by 10^th February, 2010.  The comments may be sent to the  National Institute of Public Finance and Policy (NIPFP), 18/2 Satsang Vihar Marg, Special Institutional Area (Near JNU), New Delhi 110067, INDIA or at email id [email protected]

Foreign investment policy rationalisation invites comments on portfolio, venture capital and private equity regulatory reforms. A government working group will review and recommend rationalisation of non-FDI foreign inflows-including portfolio investments by FIIs/NRIs, FVCIs and private equity-aiming to curb regulatory arbitrage while maintaining KYC safeguards. Its terms of reference require analysis of investment forms (equity, derivatives, debt), scrutiny of participatory notes, reconsideration of Securities Transaction Tax and stamp duty treatment, identification of legal and regulatory bottlenecks, and formulation of short-, medium- and long-term legal and policy reforms, informed by earlier expert committee reports.