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`Policy on participatory notes to continue'

Our Bureau

New Delhi , Sept. 4

The Finance Ministry said on Monday that status quo would be maintained on the policy on participatory notes (PNs) until a view is taken on the recommendations of the Tarapore Committee and that of the Expert Group on encouraging Foreign Institutional Investor (FII) inflows.

"The Government will take a view on this (expert group's recommendations) and other recommendations contained in the Tarapore Committee report in due course after considering all suggestions received in this behalf. In the meanwhile, status quo on policy on PNs will continue," an official release said.

PNs are basically derivatives issued by FIIs to investors abroad who may actually not be eligible to invest in Indian stock markets. Bulk of the foreign portfolio inflows comes in through the PNs.

The majority view in the Tarapore Committee on fuller capital account convertibility was that fresh issue of PNs should be disallowed and existing PNs be phased out in one year. Two of the six-members of this Committee dissented. In November 2005, an expert group on encouraging FII flows while reducing the vulnerability of the financial system to the flow of speculative capital, chaired by Dr Ashok K. Lahiri, had suggested that the current dispensation for PNs may continue.

The majority view in the expert group stated that the SEBI should have full powers to obtain information regarding the final beneficiary or any holder in case of any investigation or surveillance action. The RBI representative in the Expert Group gave a dissenting opinion.

Related Stories:
Tarapore panel for 3-phased road-map towards free float

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