Monitoring The Fii Limit

This has become an obstacle to the State Bank's membership of the National Securities Depository.

Both the depository and the State Bank are looking for a way to circumvent the difficulty by finding some other way of monitoring the ceiling. One could be that foreign portfolio investors' purchases through the depository would be reported by their bankers to the SBI. No doubt some such cumbersome method will be worked out by the players. The question is whether it should. For there is no need for the government to set any limit. By relaxing the limit to 30 per cent, it has already admitted the principle that it is for the managements to decide what percentage they want to fix for their company. Those like Rahul Bajaj who are paranoid about loss of control may not allow any FII investment at all. Many young and dynamic entrepreneurs may not want to set any limit. Either way, there is no reason why the government should fuss over the percentage.

However, the present government revels in fussing. It has quite gratuitously barred foreign airlines from investing in Indian airlines; it is in the process of enacting equally irrational, bureaucratic regulations on the ownership of media. So it may not be able to keep its hands off foreign portfolio investment. Even then there are simpler technical solutions available. One is to empower a company compulsorily to dematerialise its shares if it wants, and to insist that if it is to receive foreign portfolio investment, its shares must be either fully materialised or fully dematerialised. The depository could then be made responsible for monitoring the limit. Another would be to ensure that data from the registries as well as the depository should be available on-line to the Reserve Bank. Then the Reserve Bank