To encourage foreign portfolio investment, the Finance Ministry has set up a working group for suggesting changes in the existing policy on foreign capital inflows by FIIs, NRIs and venture capital funds. The 16-member group on portfolio investments, to be headed by UTI MF CMD U K Sinha, will also review the current arrangements relating to participatory notes– instruments through which unregistered foreign entities invest in Indian stock markets, sources said.

When contacted, Sinha said the committee has been given four months to submit report.

The group has been asked to review the existing policy on foreign inflows and suggest rationalisation with a view to encourage foreign investment and reduce policy hurdles, sources said.

The group is also expected to identify challenges in meeting the financing needs of Indian economy through foreign investment, they added.

The body would also examine the rationale of securities transaction tax and stamp duty.

The decision to set up the body was taken, even as there are apprehensions expressed in some quarters over surge in foreign capital flows, that is raising the rupee value.

The rupee has appreciated over five percent against the dollar in the last six months, hitting exports.

When asked whether he has any preliminary view on the issue of surging capital inflows, the UTI MF CMD replied in the negative.

“I don’t have any preliminary view on these issues,” Sinha said.

FIIs have net invested over Rs 73,000 crore in the Indian stock markets this fiscal. These institutional investors had earlier started selling stocks after global financial crisis deepened from the middle of September last year.

Earlier, Finance Minister Pranab Mukherjee had said the current level of FII inflows are not disturbing and there are arrangements to counter them, if they create distortions.

So far as participatory notes are concerned, curbs on them were lifted last year, after sources of foreign funds dried up due to the global financial meltdown.

Economic survey for 2008-09 has recommended phasing out of STT, but it was not done away with.

STT is levied at the rate of 0.125 percent for every transaction in cash for the delivery of shares.

Transactions in derivatives trading attract a lower STT of around 0.017 percent.

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