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Foreign investment norms for stock, debt market relaxed further
May, 30th 2012

In a major initiative to attract foreign capital and stabilise rupee, the Government on Tuesday permitted residents of the Gulf nations and all EU nations to invest directly in stock markets and allowed individual overseas investors to bring up to USD one billion in debt market.

The relaxation in overseas investment norms for individual investors, also known as the Qualified Institutional Investors (QFIs), is aimed at "making QFI scheme more attractive to potential investors and enhance flow of foreign capital into India," the Finance Ministry said.

The government will also clear apprehensions over taxation policies. The Central Board of Direct Taxes (CBDT) will shortly issue clarifications on issues concerning taxation on QFI investments. Although the Finance Ministry has put on hold General Anti-Avoidance Rules (GAAR), there has been apprehensions among the global investors over tax policies, especially after the Budget.

The government had earlier in January allowed QFIs from 34 FATF (Financial Action Task Force) member countries to invest in the equity market. Following interest shown by investors, the government has expanded the scope of QFIs include six-member Gulf Cooperation Council (GCC) nations and the 27-nation bloc European Union.

"The residents of FATF member countries and those from the countries of the GCC and European Commission would now be eligible to be considered as QFIs", said Thomas Mathew, joint secretary in the Finance Ministry.

The decision to relax the investment norms comes at a time when the government and the Reserve Bank are making efforts to arrest the slide in rupee which touched life time low of 56.38 to a dollar on May 24, mainly on account of withdrawal of funds to the tune of Rs 1,500 crore since April by FIIs. This also led to sharp fluctuations in stock market.

Further liberalising the norms, the finance ministry created a separate sub-limit of USD 1 billion for QFI investment in corporate bonds and mutual fund debt schemes.

As of now, foreign investors were allowed to invest USD 20 billion in the country's corporate bond market. With this the ceiling will increase to USD 21 billion.

"We are looking at 6-14 months to see the optimisation of QFI inflows," Mathew said.

The Finance Ministry also decided to do away with the restriction on number of days a QFIs can keep fund in their bank accounts in India, a move to ease norms for such investments.

Earlier they had to given money to Depository Participants in a pooled account and within 5 days the QFIs had to take investment decision.

This restriction of 5 days was "proving to be a dampener for genuine investors in view of high cost of transfer of funds", so the restriction on the number days that funds could be kept in individual accounts of QFIs has been "dispensed with", the ministry said.

Besides, every QFI will have separate bank account and they can retain money in bank accounts in India.

The RBI and SEBI will issue necessary instructions to this effect within seven days.

The ministry will also conduct road shows in five Gulf nations, including Kuwait and the UAE, during June 10-15. QFI's access to India will be "seamless and faster" in the market, Mathew added.

A QFI is an individual, group or association resident in a foreign country that is compliant with FATF standards. QFIs do not include FIIs/sub accounts.

Last year the government had created QFI category and allowed them to invest in MF debt schemes initially.

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