Based on Khan Committee’s interim report, Securities and Exchange Board of India (SEBI) is conceiving an idea to merge Non Resident Indian (NRI) and Portfolio Investment Scheme (PIS) routes with that of Foreign Portfolio Investors (FPIs).
Issue
Context:
Background:
The committee was mandated:
Recommendations:
Reforms:
Based on the interim report of the Khan Committee, along with other reports such as A.R Dave panel on the Consent Mechanism and the T.K Viswanathan on Fair Market Conduct, SEBI has initiated a process of reforms in the capital market of the country.
Analysis
Foreign investment is one of the most important engines of economic growth and development in India. The recent trends in the global economy have put pressure on the Indian foreign investment. In the face of it, Indian rules and regulations regarding foreign investment should have been simplified and rationalised to retain and increase the capital coming from outside the country. Although, India is one of the fastest growing economies of the world, there are certain vulnerabilities which put pressure on the overall economic performance of the country. One of the main challenges in the recent past is flight of FPIs.
There are several reasons for the flight of portfolio investment from the country in recent past. Some of the important ones are discussed below.
In the light of these challenges, frequent changes in regulations and norms pertaining to FPIs and other foreign investments would be devastating and would send a bad signal to foreign investors. SEBI announced a set of new rules for foreign fund ownership last month. Its objective was to stop Indians from round-tripping their money.
Way forward:
A multi-pronged approach is needed to attract the foreign investment in the country both portfolio and direct investment.
Learning Aid
The main points:
Practice Question:
What are the current challenges India is facing in attracting foreign investment? Discuss in the light recent changes made by the Securities and Exchange Board of India.
Approach:
Verifying, please be patient.