Mumbai: The government plans to cut red tape and ease rules for foreign portfolio investors (FPI), as it seeks to attract more investments into Asia’s third-largest economy, three people with direct knowledge of the matter said.
As part of the plan, the government will reduce the time required for FPIs to register in India, introduce a single-window clearance for them and allow foreign banks to trade on behalf of their clients without registering, the people said, requesting anonymity.
The steps come at a time when Indian exchanges have decided to stop sharing market data feeds with overseas exchanges to prevent a flight of liquidity from the country. That decision has been criticized by market participants, including index provider MSCI, which termed it anti-competitive and protectionist. Foreign investors pointed out that such moves should be accompanied by removing barriers for global investors.
“The FPI registration process, which now on an average takes two months, is set to reduce to just 3-6 days by moving towards a single application and doing away with the requirement of obtaining a Permanent Account Number," said a government official, one of the three people cited earlier.
The 2016-17 Union budget had proposed a single-window clearance for FPIs, but that proposal got stuck because of differences between the Securities and Exchange Board of India (Sebi) and the Central Board of Direct Taxes (CBDT).
“CBDT had wanted its set of documents, which took a little bit of time. But now we have come to a common ground and the department of revenue has agreed to a six-page form. Foreign Account Tax Compliance Act (FATCA) and Common Reporting Standards (CRS) will be separately done by brokers or custodians," said a Sebi official, another of the three people cited earlier. CRS is an information standard for the automatic exchange of tax and financial information on a global level.
CBDT and Sebi spokespersons did not reply to emails seeking comment.
“If this becomes a reality, it will make a huge difference in the terms of streamlining the access to the Indian markets," said Mark Austen, chief executive officer of the Asia Securities Industry & Financial Markets Association.
In addition, Sebi will allow foreign private banks to trade on behalf of their clients without FPI registration.
This comes after the market regulator tightened norms around participatory notes (P-notes) in May. Some foreign investors used P-notes to trade in securities in India without registering here. Now such investors will be allowed to trade in Indian markets through foreign banks without separately registering with Sebi.
“Earlier, private banks were not ready to share the beneficial ownership details citing confidentiality clauses. However, now they have agreed to share such data when Sebi asks for it. We have also increased onus on these banks to monitor the structure of the underlying funds so that these are not being misused for tax benefit purposes," said the Sebi official.
However, according to Austen, taxation still remains a big problem when it comes to India. “In India, the problem is to tell the investors with certainty that this is your tax obligation, which often turns out to be not correct. What they need is tax certainty and simplicity. Most of the foreign investors have the most outstanding tax dues from India, often because of lack of certainty. Capital gains introduction is double taxation," said Austen.