Govt tries to woo foreign retail investors!

The government on Tuesday eased norms for foreign retail investors to buy directly into Indian shares and bonds, including opening a separate $1 billion window for corporate debt, to boost inflows at a time when the rupee is testing fresh lows almost on a daily basis.

Apart from the $20 billion investment window for foreign institutional investors, qualified foreign investors (QFIs), which were permitted to invest directly in equities earlier this year, will now be able to buy up to $1 billion (around Rs 5,500 crore) in corporate bonds in what the government termed as “testing waters”.

On an overall basis, so far in 2012, net investment by FIIs is nearing the $12 billion mark compared to around $8 billion in 2011. But, they have withdrawn funds from India since the Budget, reflecting the “safe mode” in which FIIs are operating, given the weak global economic environment and the poor sentiment on India. So far in May, they have been net sellers of the $1.7 billion.

Although the QFI route was a New Year gift from the finance ministry, there hasn’t been any queue outside the window prompting the government review the guidelines. To begin with, retail investors from the 27 countries that make the European Union and the six that are part of theGulf Coordination Council, will now be eligible to invest directly. Earlier, the QFI route was only open to investors from the 34 members of the Financial Action Task Force (FATF), the global anti-money laundering club.

The change has been necessitated by the response from investors in the Gulf, said Thomas Mathew, joint secretary in the finance ministry. “The changes are aimed at making the QFI scheme more attractive to potential investors and enhance flow of foreign capital into India,” the finance ministry said.

The government will also clear apprehensions over taxation policies. The Central Board of Direct Taxes (CBDT) will shortly issue clarifications on issues concerning taxation on QFI investments. Although the finance ministry has put on hold General Anti-Avoidance Rules (GAAR), there has been apprehensions among the global investors over tax policies, especially after the Budget.

The finance ministry also decided to do away with the restriction on number of days a QFIs can keep fund in their bank accounts in India, a move to ease norms for such investments. Earlier, if the funds were not invested in five days, they had to be remitted to the overseas account of the foreign investor. Given that this was proving to be a dampener for genuine investors, and raising transaction costs, the cap has been dispensed with.

QFI have also been permitted to open separate bank accounts instead of the earlier practice of investing through a common pooled bank account of depository participants. “We are looking at 6-18 months to see the optimisation of QFI inflows,” Mathew said. The government has also lined up roadshows in five Gulf countries, including Kuwait and the UAE, too woo foreign retail investors.

[This story was originally published on Times of India] TNN | May 30, 2012, 05.26AM IST