50% of foreign money in mkts from ‘tax havens’

No Cause For Concern: Pranab

Pradeep Thakur TNN

New Delhi: Nearly half of the Rs 70,000 crore in offshore investment that’s come into Indian bourses this fiscal, till October, is from alleged tax havens such as Mauritius, Hong Kong and Luxembourg — the three together contributing almost Rs 25,000 crore of the net inflow from foreign institutional investors. Significant omissions from this list are FIIs from Singapore and Switzerland, two countries that had figured among the top-five with highest investments in Indian equities during the economic slowdown of 2008. FIIs from the two countries had put in over Rs 15,000 crore last year.

The government says there is no cause for concern on the strong FII inflow into stock markets, with finance minister Pranab Mukherjee stating that regulators are keeping a close watch and will act if it’s found alarming.

Till October 2009, FII-held equities totalled over $160 billion. A finance ministry statement said the highest investments came from US-based FIIs, to the tune of Rs 21,344 crore till November 10. Second on the list is Luxembourg with Rs 12,275 crore. France, Mauritius, UK, UAE, Hong Kong, Australia, Norway and Canada are the others in the top-10. Investments from Mauritian FIIs were Rs 9,400 crore, ahead of UK (Rs 4,900 crore), UAE (Rs 4,800 crore) and Hong Kong (Rs 3,438 crore).

What can be of concern for the government is the rising share of participatory notes (PNs) in the total FII flow into stock markets. Since the identity of PN investors are not known, the government had put a tight leash last year on such investments after it feared that some dirty money may have entered the market riding on P-notes.

Poor market conditions towards the end of 2008 had, however, forced the government to remove restrictions on PNs, but it had asked FIIs to register in India rather than investing through PNs. It is estimated that of net FII inflows of Rs 44,000 crore during September-October, nearly a third or Rs 14,000 crore investment was on account of PNs.

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