For foreign investors, the road to investing in India has not been easy. And if market talk is to be believed, several foreign institutional investors (FIIs) may not be able to invest in India as they have not yet received their PAN or permanent account number. Sources said that some of them even have started to divert their funds from India to other emerging and frontier markets.

Capital market regulator Sebi had made PAN mandatory for all categories of demat account-holders including foreign corporate institutions and FIIs in 2006. After the ban on participatory notes, Sebi had restrained FIIs and their sub-accounts from issuing fresh P-notes with underlying as derivatives.

The regulator had also asked FIIs to wind up positions in derivatives segment over a period of 18 months.

Many of them (foreign investors) have already exited positions held by them over the past three months. These investors are not in a position to reinvest as they have not received then PAN as yet. This could be one reason why FII investments have not picked up since October, said a research head in foreign brokerage.

Though waning FII investment figures (over the past five months) largely reflects the impact of the subprime fallout and the ban on P-notes, a small portion of losses could still be attributed to the lack of proper initiative to tap foreign investments, a top broker opined.

Foreign investors net bought shares worth Rs 18,948 and Rs 18,045 crore in September and October 2007, respectively. They were net-sellers worth Rs 4,597 crore in November 2007 and net buyers for Rs 4,098 crore in December.

Subprime worries led FIIs to net-sell shares worth Rs 17,226 crore in January 2008. Till February 22, FIIs were net buyers of shares worth Rs 4,435 crore.

Net investments may have been a bit more had authorities concerned expedited PAN card processing for foreign corporates and FIIs, say analysts.

Earlier, it used to be Sebi that took time to register foreign investors. Now when the market regulator has quickened the registration process, it is the income-tax department that is slowing down the whole process, said VVLN Shastri of Firstcall India Equity Advisors.

According to a Mumbai-based investment consultant, there is always a problem in communicating with agencies (UTI and NSDL) who are entrusted to issue PAN cards. Most of the time, they dont answer to our mails. If you call them, they inform you about the status of the (PAN) application. And there is no designated officer in both the agencies to look after FII applications, the consultant said.

UTI Technology Services chief technology officer Deepak Kumar said, UTI does not have a heavy backlog of FII applications for pan cards. We are able to issue PAN cards to foreign investors in 10-12 days; applicants can also get their PAN number online in 3-4 working days after filing application.

Officials from income-tax department and NSDL were not available for comment.