FIIs Meet FinMin Officials, Discuss Ways To Improve Inflows

Banglore:Foreign Institutional Investors (FIIs) met Economic Affairs Secretary Arvind Mayaram and discussed ways to improve inflows into the capital market. CNBC-TV18’s Aakanksha Sethi reports.

"The FIIs gave their feedback on improving inflows into the debt and equity markets. They also sought some clarification on simplification of KYC," a senior finance ministry official said.

"FIIs made suggestions on reducing withholding taxes for wider array of instruments and also sought clarification on QFIs," the official added.

The FIIs have been asking for a tax cut for the last couple of years. Last year, the withholding tax was cut from 20 percent to 5 percent in overseas borrowings that included ECBs and some corporate bonds. Now, FIIs want a cut in withholding tax to 5 percent across the board including government securities and all corporate bonds, long-term infrastructure bonds as well.The meeting comes within days of the Government raising the FII limit in debt instruments. On November 30, the Finance Ministry announced providing two new windows of $ 5 billion each for long-term foreign investors in government securities and corporate bonds.

These new windows will hike the limit for FII in domestic debt instruments to $ 75 billion. These investments can be made in Government, corporate and infrastructure bonds.

Besides, the meeting also discussed issues related to investment through the Qualified Foreign Investors (QFI) route.

The QFI route allows a foreign individual, association or trust to invest in equity, debt and mutual funds. The Government has already permitted investments by QFIs from 45 countries (including the Gulf).

Overseas investors have made net investments of $ 1.2 billion in the Indian equity market during the first week of this month.

This takes the net investment by FIIs to $ 20.9 billion so far in 2012, making it as the second highest net inflow by in a single calendar year since their entry into Indian capital markets in 1992.

FIIs, a major participant in Indian stock market, had pulled out $ 358 million (Rs 2,714 crore) in 2011.However, overseas investors have pulled out a net $ 390 million from the debt market so far this month. In 2012, so far, FIIs total investment into the debt market stood at $ 5.93 billion.

The meeting with foreign investors assumes significance in the backdrop of a host of reform initiatives, including relaxing FDI norms for retail, insurance and pension sectors, being undertaken by the government to attract investment.

Besides, the government is also trying to address the problem with regard to implementation of General Anti-Avoidance Rules (GAAR). Apart from the Finance Ministry officials, the meeting was also attended by representatives from market regulator Sebi and the Reserve Bank of India.