In its bid to soothe the nerves of panic-stricken investors, Finance Minister Arun Jaitley has said they need not fear any “knee-jerk” reaction from the government on the SIT report, which had recommended tough measures to check investment flows through P-Notes. Jaitley said that 'It is too early to say what view the government would take. But it will certainly not take any such action in a knee-jerk reaction, particularly one which has any adverse impact on investment environment.' Jaitley also said government will wait for public comments on draft finance code before forming any view on monetary policy committee.
The Supreme Court-appointed SIT on black money last week recommended a host of measures, including suggesting the securities regulator SEBI to tighten norms related to participatory notes investments into India. The SIT said that Sebi does not have information about the ultimate beneficial owner of these transferable instruments, making it prone to be abused for round-tripping of tax-evaded funds back to India.
The SIT suspects that the P-note route is being used for the purpose of tax evasion and has also asked Sebi to compulsorily identify real owners of foreign funds coming through the controversial P-Note route and also prosecute those using equities for tax evasion, and take other steps required to curb black money and tax evasion through the stock market route.
Participatory Notes (P-Notes) are used by large number of foreign investors to invest in equity markets without disclosing their identity to the market regulator Sebi. Mostly, high net worth individuals, hedge funds and other foreign institutions tap this channel to invest in India through foreign institutional investors (FIIs). Investments through P-notes into India's capital market were at a whopping Rs 2.75 lakh crore at the end of June, over 11 per cent of total foreign institutional investment (FII) into the Indian markets.
