IDRs fail to clear ministry hurdle

The introduction of Indian Depository Receipts (IDRs), the new equity instrument proposed by the Securities and Exchange Board of India (Sebi) that would allow companies registered outside the country to list on Indian stock exchanges, has run into trouble.

Sources close to the development said the finance ministry was apprehensive that allowing foreign companies to raise funds from the domestic market for expenses outside India would result in "export of capital."

Further, it was felt that IDRs should be allowed only after the full convertibility of the rupee.

The ministry is in favour of foreign companies raising funds through IPOs by their Indian subsidiaries, rather than the IDR route. This ensures participation of retail investors in such issuances.

According to existing norms, the minimum investment for IDRs is Rs 2 lakh, making them out of reach of small investors, it was pointed out.

Sebi had proposed IDRs to allow global corporations to list on the Indian stock market, making the country's capital market more vibrant and deeper, like the New York and Nasdaq stock exchanges in the US.

The US bourses and stock exchanges like those in London and Singapore allow companies from across the world to raise capital through American Depository Receipts (ADRs) and Global Depository Receipts (GDRs), respectively.

The capital market regulator hoped to make India a preferred destination, at least for companies in South Asian and South East Asian countries.