The government will form a working group for suggesting ways to promote foreign investments other than foreign direct investment (FDI) into the country as the economy requires huge funds to sustain its high growth rate.
The working group, to be represented by the government, regulators, and private sector, will review the existing policy on foreign institutional investors (FIIs), including through participatory notes, non resident Indians, foreign venture capital investors and private equity entities, the Finance Ministry said in a statement today.
"The group will identify challenges in meeting the financing needs of the economy through foreign investment, study arrangements relating to the use of participatory notes...And re-examine the rationale of taxation of transactions through the securities transaction tax and stamp duty," the statement said.
The legal and regulatory framework of foreign investment in order to identify specific bottlenecks impeding the servicing of these financing needs would also be studied.
Indian economy is expected to grow at 9-10 per cent in a couple of years, Prime Minister Manmohan singh has said. The double digit growth would necessitate the need for huge fund flows, which could come either from domestic markets of foreign.
In 2009, FIIs pumped in net Rs 85,000 crore against net withdrawal of Rs 52,000 crore in the previous year.
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The group would also examine various types of foreign inflows from the point of view of the investors taking advantage of arbitrage due to stand-alone regulations.
Arbitrage means taking advantage of price difference between different locations.
The Ministry has invited comments from industry and public on this issue.