1. ‘No P-note norm tightening now’

‘No P-note norm tightening now’

Revenue secretary Shaktikanta Das on Thursday indicated that further tightening of the disclosure requirements to track the ultimate beneficiaries of participatory notes...

By: | New Delhi | Published: August 21, 2015 1:03 AM
The share of P-notes, which used to account for about half of the total foreign portfolio investment into India in 2007, had gradually declined after Sebi tightened disclosure norms.

The share of P-notes, which used to account for about half of the total foreign portfolio investment into India in 2007, had gradually declined after Sebi tightened disclosure norms.

Revenue secretary Shaktikanta Das on Thursday indicated that further tightening of the disclosure requirements to track the ultimate beneficiaries of participatory notes (P-notes) was not on the government’s immediate agenda.

“The government will not do anything that goes against its own efforts to foster economic growth,” the official told corporate leaders at a conference organised by industry chamber Assocham here.

Das’ statement assumes significance given that top Securities and Exchange Board of India (Sebi) officials stated recently that the regulator would “look into” the suggestions made by the Supreme Court-appointed special investigation team (SIT) on the need to have a more foolproof mechanism to identify the ultimate beneficiaries of P-notes, even as they reiterated that monitoring was robust even now.

P-notes are instruments that non-residents use to invest in Indian markets through institutional investors registered with Sebi. Das said any attempt to increase the disclosure requirements applicable to these investors would only be “after extensive consultations”. Endorsing Sebi’s view that the existing mechanism to monitor the use of P-notes are strong, the official said the SIT only felt that an improvement in it was desirable.

The share of P-notes, which used to account for about half of the total foreign portfolio investment into India in 2007, had gradually declined after Sebi tightened disclosure norms. It now accounts for about 15-20% of the total foreign institutional investments into India. As on February 2015, about 2.75 lakh crore worth of P-notes were outstanding.

The SIT led by justice MB Shah recommended better regulatory oversight for P-notes saying Sebi does not have information about the ultimate beneficial owner of these transferable instruments, making it prone to be abused for round-tripping of tax-evaded funds back to India. The SIT was set up in May last year to investigate black money, a key plank on which the Narendra Modi government came to power. Finance minister Arun Jaitley too recently said the policy response to the SIT’s suggestions would be a well-considered one, and not knee-jerk one.

The government clearly does not want to upset investor sentiments at this juncture. It is also reviewing the recommendations of the justice AP Shah panel that examined whether the tax department was right in demanding foreign portfolio investors to pay minimum alternate tax on their trading income in India. “The government will consult regulators as well as market players on any change (in regulation of P-notes),” Das said.

Soon after the SIT said capital market regulator Sebi needed to ensure that owners of P-notes could be better identified, Sebi officials said the norms were already very stringent. Sebi chairman UK Sinha clarified that the regulator was getting monthly updates about the end investors of these derivative instruments.

Noteworthy:

* Any change in P-note rules only after extensive talks
* Govt endorses Sebi view that rules are already tight
* No overnight ban, sustaining capital flows high on priority
* Justice MB Shah-led SIT wanted tighter oversight
* Share of P-notes in overall FPI inflow has been declining
* Sebi already gets monthly updates on ultimate investors

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