Govt says PNs here to stay, Tarapore's view rejected

New Delhi, Sep 4 (UNI) In a signal to the Foreign Institutional Investors (FIs) that their funds will be encouraged into the bourses, the Government today said a status quo will be maintained with regard to Participatory Notes (PNs), notwithstanding the recommendations to the contrary by the Tarapore Committee on Fuller Capital Account Convertibility.

The important implication of this stand of the government is that FIIs will continue to use the route of PNs for bringing in funds into the stock markets.

The Tarapore Committee, by a majority decision, had suggested that the fresh issue of PNs should be disallowed and the existing PNs be phased out in a year. Two of the six members, however, gave their dissenting note on the issue. They are Mr A V Rajwade and Mr Surjit S Bhalla.

"The government of India will take a view on this and other recommendations contained in the Tarapore Committee Report in due course after considering all suggestions received in this regard. In the meanwhile, the status quo on policy on PNs will continue", an official release said here.

Earlier, an Expert Group on Encouraging FII flows, headed by Dr Ashok Lahiri, had submitted its Report to the government in November, 2005. The majority view of the Expert Group was that the current dispensation for PNs should continue.

The majority view also stated that 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 representatives in the Expert Group had given a dissenting opinion.

The Tarapore Committee was appointed by the RBI at the behest of the Union Government.

This Committee favoured a bar on fresh portolfio inflows and a winding up of the existing PNs within a year. The Tarapore Committee's views had fuelled fears among portfolio investors.

The message being conveyed by the government is that FII flows will continue to be encouraged and would not roll back capital market reforms. The FIIs, who are significant players in the Indian stock markets, are fuelling the present rally.

RBI has been oppossing PNs, as it reckons that the investor's identitiy will not be known. The counter view is that a good part of funds which come via PNs is from reputed establishments.

UNI GS SB HT2012