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NRIs Are Very Much In The Scheme Of The Government: M Damodaran, Chairman, Excellence Enablers And Former Chairman Of SEBI

Out of around 5,000 listed entities, only 50 companies have a combined NRI investment of about 7%, against the permissible limit of 10%

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He was speaking at a Dovetail session on Future of Regulatory Framework for Foreign Investments in India New Delhi: At a webinar on the topic ‘Unriddle Capital Markets’, organised by Dovetail Capital, former Chairman of SEBI, M Damodaran, shared some thoughts on “Future of Regulatory Framework for Foreign Investments in India”. During the hour-long conversation with team Dovetail and the attendees, mostly comprised renowned fund managers from across the globe, Mr Damodaran crystal gazed on the future of foreign investment in the country, and the present regulatory framework. He mentioned that regulatory infrastructure must align with the legitimate expectations of foreign investors in the Indian market.

Notwithstanding the setback caused by COVID, the economy has started picking up, and is showing signs of steady growth. However, in the light of the recent surge in COVID positive cases, there have been some conversations around limited lockdowns in some parts of the country. It is unlikely that any major step, that will impact adversely on the economy, will be taken at this juncture.

There are apprehensions and anxieties in the minds of persons abroad, who invest in the Indian market, because of a relatively complex regulatory landscape. NRIs who look at the FPI route, and also invest through PIS, would like a simpler and a more facilitative regulatory regime. The feeling that regulations are presently against the interest of the NRI, and in favour of foreign investors, is without basis. NRIs are very much in the scheme of the Government. Regulations and law making are proceeding in the right direction. It is clear that a developing economy, with its sights set on higher growth, would need a significant flow of funds, and therefore, the Government will not act against the legitimate interests of NRIs and other overseas investors.

Referring to why there are restrictions relating to NRI investments through the FPI route, he mentioned that the circumstances leading to such restrictions need to be kept in mind. There was, and perhaps continues to be, a fear that tax escaped income finds its way into the Indian securities market. This view was articulated some years ago by the then National Security Advisor. This led to some amount of understandable distrust, which manifested itself in the kind of restrictions that were contemplated, and enforced. There is a gradual movement from distrust to trust, and sooner, rather than later, the approach could be one of trust, but verify. The decriminalisation of many offences under the Companies Act, 2013 is a pointer towards the emerging philosophy of promoting good conduct, not through fear of penal consequences, but the promise of legitimate rewards. However, so long as round tripping is a possibility, regulations will continue to have an element of restrictions.

Responding to the question of SEBI imposing restrictions on NRI, when no such restrictions exist in regard to foreign investors, Mr Damodaran said that it might be worthwhile to look at some numbers. Out of around 5,000 listed entities, only 50 companies have a combined NRI investment of about 7%, against the permissible limit of 10% (which could go upto 24% in the event of a special resolution passed by the General body of the company). Therefore, it would seem premature to talk in terms of a restriction standing in the way of NRI investments.

Mr Damodaran mentioned that in recent conversations, in the context of the Securities Laws, a view that seems to find expression is that by focussing excessively on retail investors, the system is not giving adequate attention to the needs of institutional investors. While the focus on retail investors is legitimate in the Indian context, it should not stand in the way of a relook at whatever is needed to attract institutional investors into the Indian market.

Responding to specific questions on the Gujarat International Finance Tec-city (GIFT) City, he mentioned that the initial expectations might have been somewhat modest. However, in course of time, GIFT City and the new regulatory institution located therein, have made rapid strides. There is a continuing focus on what other modern financial centres have put in place in order to at least replicate, if not improve, on those aspects. He dismissed the unfounded fear that should a change take place in the political landscape, GIFT City’s progress towards being a modern international financial centre could be affected. It was crystal clear that this initiative has the unstinted support of the Government, and it will get established as one of the modern financial centres of the world.

One other concern that was expressed was that too many changes are being made in laws and regulations. Mr Damodaran responded with the observation that there must be clarity, continuity, and certainty in regulations. The proposed consolidation of the Securities Acts will be an opportunity to demonstrate the drafting of laws that can be better understood, and therefore better complied with. Regulators are also coming together, as witnessed by the inter-regulatory group addressing issues raised in the context of easing foreign investment. Given that there are tax issues also that need to be addressed, he felt that a representative of the tax department should invariably be associated with all such committees.

Concluding, he stressed the fact that continuing efforts are being made by all concerned to promote the ease of doing business in India. A part of that effort will clearly be creating the right environment and the regulatory regime for attracting foreign investment into India.