Listing By Foreign Firms Shelved

The government has shelved plans to permit foreign companies to get listing on Indian stock exchanges. The decision was taken by the standing committee of the High Level Group on Capital Markets, headed by Reserve Bank governor Bimal Jalan, last week.

Earlier, the view was that listing should be allowed only if foreign firms agreed not to repatriate the proceeds of any public offerings made in India. The meeting concluded that such a clause would be a disincentive to foreign companies and, hence, the move to allow listing here should be deferred.

But the Reserve Bank voiced its concern about the potential pressure on the balance of payments situation if the companies were allowed to repatriate funds from India.

 

Listing of foreign firms was one of the issues taken up at the first meeting of the newly-constituted standing committee of the high- level group. The committee, consisting of officials from the finance ministry, the Reserve Bank and the Securities and Exchange Board of India, is scheduled to meet next week.

The sub-group was formed to ensure that the high-level group's decisions were implemented properly. The group takes up issues relating to the capital markets that overlap with the functions of RBI and Sebi.

Earlier, the group resolved a face-off between Sebi and RBI over scrapping the ban on forward transactions in securities. The group usually meets once in six months, and it was felt that setting up a smaller group would help ensure continuity.

The issue of permitting foreign companies to list in India came up for the first time in the context of a state-owned Sri Lankan firm. It was suggested that the company be allowed to offload its stakes in the Indian markets as part of its privatisation plan.

The proposal was put up to the finance ministry for consideration. But the ministry had then argued that such a proposal was welcome provided there was something in it for India as well. In the ministry's assessment, in allowing more companies _ some of which may be top-graded firms _ to list in India, the downside risk was that it could entail a huge capital outflow.

At present, since the government does not permit full convertibility of the rupee on capital account, the decision required the joint concurrence of RBI and the finance ministry. The matter was discussed by the high-level group at its last meeting where RBI opposed the proposal (unless some caveats were inserted).