On regulations for foreign investors
Mains Paper 3: Economy
Prelims level: Not much
Mains level: Key implications from SEBI’s move on FPI
- Foreign investors who have been fleeing the country since the Union
budget presented early last month have something to cheer about finally.
- The Securities and Exchange Board of India (SEBI), based on the
recommendations of the H.R. Khan committee, eased several regulatory
restrictions that are likely to make life easier for foreign portfolio
- Among a slew of measures, the financial markets regulator has simplified
the registration process for FPIs by doing away with the broad-based
eligibility criteria, which required a minimum of at least 20 investors in a
foreign fund, and certain documentary requirements.
Engage off market sale:
- FPIs can now also engage in the off-market sale of their shares with
fewer restrictions. Further, SEBI has allowed entities registered at an
international financial services centre to be automatically classified as
FPIs. This might help foreign investors bypass some of the restrictions.
- Mutual funds with offshore funds too can invest in India as FPIs to
avail certain tax benefits now. Central banks that are not members of the
Bank of International Settlements are also allowed to register as FPIs and
invest in the country under the new norms.
- Smart cities, along with other urban development agencies, will now be
allowed to issue municipal bonds to raise funds for development.
- These measures to cut red tape will help lower the regulatory burden on
investors, globalise India’s financial markets, and aid the growth of the
broader economy by increasing access to growth capital.
Key implications from SEBI’s move:
- It is not immediately clear whether SEBI’s move was motivated by the
recent flow of funds out of India’s capital markets.
- Capital in excess of ₹20,000 crore has left Indian shores in the last
few weeks after Finance Minister Nirmala Sitharaman’s budget decision to
increase taxes on FPIs.
- Policymakers were clearly under pressure to do something to allay the
fears of foreign investors, so the timing of SEBI’s move is no surprise.
- But given the broader trend of capital flowing out of emerging markets
across the world, it remains to be seen whether SEBI’s present move will
yield immediate benefits. Even if it fails to do so, the move will still
help Indian markets become more attractive to foreign investors in the
- While the steps taken by policymakers to make amends for their previous
policy errors are obviously welcome, they should not deflect attention from
the larger and persistent issue of overreach by the government against
- In a world of globalised capital markets, where many nimble emerging
markets compete to attract capital from the developed world, India cannot
afford to be seen as flip-flopping on its commitments.
Q1. With reference to the UNESCO’s degrees of endangerment for languages,
consider the following statements:
1. Definitely endangered languages are those which are no longer being
learnt by children as their mother tongue.
2. Critically endangered languages are those of which the youngest speakers are
the grandparents or older family members who may speak the language partially or
Which of the statements given above is/are correct?
A. 1 only
B. 2 only
C. All the above
Q1. SEBI’s liberalised norms for FPIs will make Indian markets attractive to
foreign investors. Comment.