Remove Curbs On Raising Greenbacks
The Tarapore committee has recommended that no prior Reserve Bank of India approval will be necessary for foreign direct investment or disinvestment
The Tarapaore committee has suggested the opening of flood gates for corporates accessing foreign funds via the equity route. All restrictions on accessing international capital markets by resident corporates by way of GDRs/ADRs/other equity issues is to be removed subject to reporting such transactions not later than 30 days of the close of the issue, according to the recommendations of the committee.
Currently, access to international capital markets through equity issues like GDRs/ADRs is permitted on a case-by-case basis by the centre, and clearance is obtained from the RBI under Fera. While timing of the issue is crucial for its success, the approval process itself involves avoidable delays. Since all such issues are handled by merchant/investment bankers taking into account all factors including the rating of the corporate/country, prior approval by Government/RBI is not necessary, feels the committee. Moreover, most of the international capital markets are regulated by regulators for investor protection and minimising systemic risk.
Foreign direct investment (FDI) being vital for the growth of the economy, the committee has recommended that no prior RBI approval be necessary for foreign direct investment/disinvestment.
Further, to encourage FDI, the guidelines for investment/disinvestment should be made transparent without complicated administrative clearances and without any requirement of any form of RBI intervention.
As in the case of FDI by non-resident corporates, FDI by non-resident individuals should be without prior RBI approval but subject only to reporting by authorised dealers(AD).
As per the recommendations, under the FDI, no distinction need to be made between non-resident Indians and other non-residents. Hence, it recommends that all direct investments/disinvestments by non-resident individuals may be governed by the comprehensive and transparent guidelines on foreign investment (direct and portfolio), and may be freed of all restrictions from exchange control subject to reporting through ADs.
That apart, under section 25 of the Banking Regulation Act, 1949, a restriction regarding deployment of assets by way of loans or investments outside India to 25 per cent of a banks demand and time liabilities exists. It is suggested that other than this legal restriction, no restrictions need be placed on deployment of banks funds outside India either by way of investments or loans.
Investments may be made in overseas money markets, mutual funds and foreign securities. The ceiling under Section 25 would include investment in overseas markets made from foreign currency accounts maintained in their books in India. The banks management may formulate a policy in this regard keeping in view the credit risk and prudential regulations relating to currency exposure and maturity mismatches.
In order to diversify the investment opportunities for residents, the committee recommends that Sebi approved investors in India (including mutual funds) could be allowed to set up funds part/whole of which can be invested in overseas markets.
Such funds could be open for subscription by all residents and may be subject to an overall ceiling of US $ 500 million in Phase I with higher overall ceilings of US $ 1 billion for Phase II and US $ 2 billion for Phase III. The overall ceiling should be so operated that a few large funds do not pre-empt the overall amount. Individual fund clearances from the exchange control should be only for purposes of implementing the overall ceiling.