MCA extends deadline for mandatory Demat of Private Company shares until 30th June 2025

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In a significant move, the Ministry of Corporate Affairs (MCA) has extended the deadline for mandatory dematerialization of securities for certain private companies until June 30, 2025. This extension, announced through a notification dated February 12, 2025, grants more time for compliance under the Companies (Prospectus and Allotment of Securities) Amendment Rules, 2025, which modifies the existing Companies (Prospectus and Allotment of Securities) Rules, 2014
In a significant move, the Ministry of Corporate Affairs (MCA) has extended the deadline for mandatory dematerialization of securities for certain private companies until June 30, 2025. This extension, announced through a notification dated February 12, 2025, grants more time for compliance under the Companies (Prospectus and Allotment of Securities) Amendment Rules, 2025, which modifies the existing Companies (Prospectus and Allotment of Securities) Rules, 2014

The Ministry of Corporate Affairs (MCA) has officially extended the deadline for the mandatory dematerialization of securities for private companies.

According to the latest notification issued on February 12, 2025, the new compliance deadline has been pushed to June 30, 2025.

This amendment revises the Companies (Prospectus and Allotment of Securities) Rules, 2014, specifically Rule 9B, which mandates dematerialization for specific categories of private companies.

The official Notification is attached here for reference:

Key Highlights of the MCA Notification

Extension until June 30, 2025

  • The deadline for compliance with Rule 9B (2) has been extended from March 31, 2023, to June 30, 2025.
  • This provides private companies (other than small and producer companies) with more time to complete the dematerialisation of securities and obtain ISIN (International Securities Identification Number).

Applicability of the Rule

  • All private companies, excluding small companies and producer companies, are required to comply.
  • Companies that intend to issue new shares, transfer shares, or make any alterations in their capital structure must do so only in dematerialised form.

The objective of the Amendment

  • To ease the transition for private companies that have not yet complied.
  • To ensure greater market transparency and alignment with regulatory frameworks for public companies.
  • To facilitate smooth investor participation and digital securities transactions.

What is the Dematerialization of Shares?

Dematerialization is the process of converting physical share certificates and other securities into an electronic format, eliminating the need for paper-based documents. Once dematerialized, these securities are held in a demat account, which functions like a digital repository for financial instruments.

A depository is an entity that holds securities in an electronic form and facilitates seamless transactions. It ensures security, transparency, and ease of trading. In India, depositories are governed under the Depositories Act of 1996 and regulated by the Securities and Exchange Board of India (SEBI).

The two SEBI-registered depositories in India are:

  • NSDL (National Securities Depository Ltd.) – Primarily linked with the National Stock Exchange (NSE).
  • CDSL (Central Depository Services (India) Ltd.) – Associated with the Bombay Stock Exchange (BSE).

Rule 9B: Mandatory Dematerialization of Securities for Private Companies

In October 2023, the Ministry of Corporate Affairs (MCA) introduced Rule 9B under the Companies (Prospectus and Allotment of Securities) Rules, 2014. This regulation made it mandatory for certain private companies to dematerialize their securities, aligning them with corporate governance standards applicable to public companies.

Applicability of Dematerialization of Shares

The dematerialization of shares applies to various entities within the securities market, ensuring transparency, security, and ease of transactions.

Public Companies

All public companies in India are mandated to hold and transact their securities in dematerialized form.

Private Limited Companies

All private limited companies, except those categorized as small companies, must comply with dematerialization regulations.

Holding and Subsidiary Companies

  • Any private limited company that is a holding company or a subsidiary of another corporate entity must dematerialise its shares.
  • This applies even if the company qualifies as a small company under financial thresholds.

Small Companies – Exception to Dematerialization

A small company is defined as a private limited company that meets the following financial criteria:

  • Paid-up capital: INR4 crore (INR 40,000,000) or less
  • Turnover: INR40 crores (INR 400,000,000) or less in the preceding financial year

Small companies are exempt from mandatory dematerialisation unless they are:

  • A holding company of another entity
  • A subsidiary company of another corporate body

In these cases, they must comply with dematerialisation requirements, irrespective of their financial position.

Last date for Dematerialization of Physical Shares

Considering the challenges faced by companies in executing the dematerialisation process, the Ministry of Corporate Affairs (MCA) has extended the compliance deadline. The new last date for mandatory dematerialisation of shares is June 30, 2025, revised from the earlier deadline of September 30, 2024.

Implications of the Deadline Extension for Private Companies

  • For Non-Compliant Private Companies: Companies that have not obtained their ISIN or completed dematerialisation now have extra time to comply. They must coordinate with depositories (NSDL/CDSL), registrar & transfer agents (RTAs), and professionals to initiate the dematerialisation process.
  • For Companies already in Compliance: Those who have already obtained their ISIN and dematerialised securities will not be affected. However, they should continue ensuring that any new share issuance or transfer occurs only in dematerialised form.

How to Convert Physical Shares into Demat?

Converting physical share certificates into electronic form is a simple and efficient process. Below is a step-by-step guide to help complete the dematerialization process:

Step 1: Open a Demat Account

To begin, you need to open a Demat account with a Depository Participant (DP), such as a bank, stockbroker, or financial institution. This account will hold your shares in electronic form.

You must fill out an account opening form and provide essential details, including:

  • Bank account details (Account number, IFSC code, Bank name, and Branch address)
  • Identity and address proof
  • PAN card

Once your Demat account is successfully set up, you can initiate the dematerialization process.

Step 2: Submit a Demat Request Form (DRF)

Obtain a Demat Request Form (DRF) from your DP, complete it accurately, and sign it. Ensure that the names and signatures on the form match those on the share certificates and the company’s records.

Step 3: Verification and Processing

After submission, the DP will verify your details and issue a Dematerialization Request Number (DRN) to track the status of your request.

Step 4: Forwarding to Registrar and Share Transfer Agent (RTA)

Your DP will forward the dematerialization request along with your physical share certificates to the respective Registrar and Share Transfer Agent (RTA) of the issuing company.

Step 5: Conversion to Electronic Form

Once the RTA verifies and approves the request, your physical share certificates will be cancelled and converted into electronic form to prevent misuse.

Step 6: Credit to Your Demat Account

The dematerialized shares are then credited to your Demat account, allowing you to sell, transfer, or pledge them as needed.

Penalties for Non-Compliance with Dematerialization Requirements

Failure to comply with Rule 9B of the Companies Act, 2013, can result in serious consequences for private companies, including:

  • Restrictions on Securities Transactions: Companies failing to comply will be barred from issuing or allotting any securities, including those related to bonus issues and buybacks.
  • Limitations for Shareholders: Shareholders holding physical shares will be restricted from selling or transferring their securities. They may also lose eligibility for rights issues and dividend benefits.
  • Monetary Penalties for Companies
    • Penalties for Company Officers: Officers in default may face penalties of up to INR 50,000 for non-compliance.
    • Initial penalty: INR 10,000
    • Continuing penalty: INR 1,000 per day until compliance is met, up to a maximum of INR 200,000.

Conclusion

The extension of the dematerialisation deadline to June 30, 2025, provides much-needed relief for private companies, allowing them additional time to comply with Rule 9B of the Companies Act, 2013. Companies should take advantage of this extension to complete the demat process, obtain their ISIN, and ensure compliance to avoid penalties and restrictions on share transactions.  

Frequently Asked Questions (FAQs)

  1. What is the new deadline for the mandatory dematerialisation of private company shares?

The Ministry of Corporate Affairs (MCA) has extended the compliance deadline to June 30, 2025, from the earlier date of September 30, 2024.

  1. Which companies are required to dematerialise their shares?

All private limited companies, except those categorised as small companies, must comply with the dematerialisation requirements under Rule 9B of the Companies Act, 2013. Additionally, holding and subsidiary companies must also dematerialise their shares, regardless of their size.

  1. Are small companies exempt from the dematerialisation requirement?

Yes, small companies (those with a paid-up capital of INR4 crore or less and turnover of INR40 crore or less) are exempt. However, if they are a holding or subsidiary company, they must comply with the dematerialisation mandate.

  1. What happens if a company does not complete the dematerialisation process by the deadline?

Non-compliant companies may face:

  • Restrictions on issuing or allotting securities, including bonus shares and buybacks.
  • Limitations for shareholders, preventing them from selling or transferring physical shares.
  • Monetary fines of INR 10,000, with an additional INR 1,000 per day until compliance is met (up to INR 2,00,000).
  • Penalties for company officers, with fines up to INR 50,000.
  1. How can physical shares be converted into dematerialised form?

The dematerialisation process involves:

  1. Opening a Demat account with a Depository Participant (DP).
  2. Submitting a Demat Request Form (DRF) along with physical share certificates.
  3. Verification and processing by the DP and Registrar & Share Transfer Agent (RTA).
  4. Conversion to electronic format and crediting to your Demat account.
  1. Which depositories handle dematerialisation in India?

The two SEBI-registered depositories in India are:

  • NSDL (National Securities Depository Ltd.)
  • CDSL (Central Depository Services (India) Ltd.)
  1. Is dematerialisation required for new share issuances and transfers?

Yes, as per Rule 9B, all new share issuances and transfers must be conducted in dematerialised form. Companies that have already completed the demat process must ensure ongoing compliance for any future transactions.

  1. How to get help with the dematerialisation process?

You can get help from professional bodies that provide end-to-end assistance for companies looking to dematerialise their shares through NSDL/CDSL. They help in documentation, coordination with depositories, and compliance filing to ensure a seamless transition to electronic shareholding.

MCA Circular dated 2025 02 12

SEBI action against auditors not ‘turf war’: Ajay Tyagi

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Capital markets regulator Sebi on Wednesday said its actions against auditors for faulty audits are within its “Parliamentary mandate”, and there is no question of “turf wars” on this issue.
SEBI Chairman Ajay Tyagi said the watchdog is working only to protect the interests of investors and limiting its actions to auditors of publicly listed firms.

In 2018, the regulator banned Price Waterhouse for two years from auditing any listed firm for its role in the Satyam Computer Services scam. However, the audit firm had successfully challenged the same in the Securities Appellate Tribunal and got the order quashed.

“It is our parliamentary mandate I would say to see that it is done and there is no trouble there. It goes to the basic issue of investor protection being the parliamentary mandate of Sebi,” he noted.

In November, the Supreme Court stayed a SAT order which had held that Sebi does not have the power to bar auditors.

“Our position is very simple — if they’re auditing listed companies based on which investors are investing, and if we find that that work has not been done properly and in investors’ interest, some audit firms should not be allowed to audit for sometime of the listed companies,” Tyagi said at an event here.

According to Tyagi, audit firms are important gatekeepers who help companies put out results and financial performance to the stock exchanges, based on which investors take the call whether to invest or not.

“It is not our case that Sebi is the agency which registers or regulates the auditors. It is nothing like that… We are not de-registering auditors. We don’t have the authority and we don’t wish to have that authority,” he said.

He also made it clear that Sebi’s expectation is that faulty audits should not lead to inflated profits or dividends.

Regarding IPO market, Tyagi said there has been an improvement in activities lately and that nearly a dozen issues of over Rs 15,000 crore are in the pipeline.

The regulator has given its wish-list for the budget to the finance ministry, includes ways to increase the activities in the corporate bond market, he said.

SEBI tweaks rules for IPOs, buybacks and takeovers

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The Securities and Exchange Board of India (Sebi) on Thursday eased several rules relating to Initial Public Offers (IPO), rights issues, buybacks and takeovers. The regulator’s board approved these changes as also those relating tenures of managing directors of market intermediaries. The capital markets watchdog reduced the time for announcing the price band of initial […]
The Securities and Exchange Board of India (Sebi) on Thursday eased several rules relating to Initial Public Offers (IPO), rights issues, buybacks and takeovers.

The regulator’s board approved these changes as also those relating tenures of managing directors of market intermediaries. The capital markets watchdog reduced the time for announcing the price band of initial public offers (IPO) from five working days before the opening of the issue to two working days. This will give companies more time to fix the price band.

 

Companies now need to provide investors with financial disclosures — for public issues and rights issues — for only three years. Currently, information is provided in the offer documents for five years. Also, companies need to provide only consolidated audited financial disclosures in the IPO offer document; audited standalone financials of the issuer and subsidiaries must be disclosed on the company website.

 

Following a board meeting on Thursday, the capital markets regulator tweaked the buyback norms. The buyback period has been defined as the time between the board resolution or the date of declaration of results for a special resolution authorizing the buyback of shares and the day on which the shares are paid.

Also, Sebi has amended the takeover rules. It has given companies additional time to revise the open offer price upwards till one working day before the start the tendering period.

 

The Sebi board also approved some recommendations of R Gandhi committee on regulations relating to market infrastructure institutions (MIIs). For rights issues the threshold for submission of the draft letter of offer to Sebi has been increased to Rs.10 crore as against the earlier prescribed Rs 50 lakh. The regular also tweaked the rules relating to the underwriting of all non-SME public issues. If 90% of the fresh issue of share is subscribed, the underwriting will be restricted to that portion only. Accordingly, the requirement to underwrite 100% of the issue without regard to the minimum subscription requirements has been deleted.

 

Sebi also reduced minimum anchor investor size to Rs 2 crore from the existing Rs 10 crore, for SME issuances. This will allow companies to attract more anchor investors for an issue.

 

The board has permitted eligible domestic and foreign entities to hold up to 15% shareholding in case of Depository and Clearing Corporation. Moreover, multilateral and bilateral financial institutions, as notified by the government, have also been recommended to hold up to 15% in an MII. Moreover, Sebi has decided to limit the tenure of managing directors of an MII for a for a maximum of two terms of up to 5 years each or up to 65 years of age, whichever is earlier. The requirement would also apply to incumbent MDs of MIIs.

 

The regulator is also looking into the issues regarding IPO ICICI Securities in ICIC AMC bought the large stake.The regulator had sought details of a significant investment made by ICICI Prudential Mutual Fund in the IPO of ICICI Securities. “Yes we are looking into that, and we have sought some information from them, and we are yet to get their replies,” Tyagi said.

 

Source: Financial Express

SEBI panel proposes stricter norms for RTAs

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SEBI proposed that the board of RTA should have public interest directors when it becomes a QRTA.

A Securities and Exchange Board of India (Sebi) panel on Friday proposed tighter ownership and governance norms for registrar and transfer agents (RTAs).

According to a discussion paper released by Sebi, the panel, headed by former Reserve Bank of India (RBI) deputy governor R. Gandhi, felt that since RTAs manage sensitive investor-related data, there need to be stricter governance rules for them.

RTAs maintain detailed records of all investor transactions in mutual funds and shares. They also help investors complete their transactions and receive a record of their account statements.

This is the second discussion paper by the panel after some market participants suggested it should add credit rating agencies (CRAs), RTAs and debenture trustees (DTs) in the list of market infrastructure institutions (MIIs) and frame stricter norms for them, similar to those followed by MIIs such as exchanges, depositories and clearing corporations.

The panel, however, felt RTAs, CRAs and debenture trustees need not be categorized as MIIs but suggested that RTAs should have tighter norms.

In September 2017, Sebi had defined qualified RTAs (QRTAs) as “RTAs servicing more than 20 million folios”. The Sebi panel felt that once an RTA becomes a QRTA, enhanced ownership norms should be applied to them.

In India, there are only two RTAs (Karvy Computershare Pvt. Ltd. and Computer Age Management Services Pvt. Ltd.) which service 90% of the mutual fund folios. Karvy has around 40% market share in corporate folios.

The Sebi panel said QRTAs should either have a dispersed ownership or be owned by regulated entities or entities in the business of RTA.

While regulated entities can be allowed to hold 100% in RTAs, unregulated entities should not be allowed to hold more than 49% collectively and 15% individually in RTAs, the panel said. If the QRTA is an in-house entity or one that performs the function exclusively for one entity only, such ownership norms may not be required, the paper said. However, when an RTA becomes a QRTA, it may be given five years to achieve the proposed ownership structure, said the Sebi panel.

Sebi proposed that the board of RTA should have public interest directors (PIDs) when it becomes a QRTA.

“If the chairperson is a non-executive director, the QRTA shall have at least one-third of the board of directors as PIDs; and where the QRTA does not have a regular non-executive chairperson, it shall have at least half of the board of directors as PIDs,” according to the Sebi panel.

With regard to CRAs, the panel said since Sebi has already put in place tighter norms for CRAs, they need not be categorized as MIIs and be subjected to further stringency.

However, the panel proposed that the so-called “Appeal Committee” in CRAs should be renamed as ‘Review Committee’, as the word appeal has a legal connotation to it. Further, the review committee of CRAs should have independent members, the Sebi panel said.

On DTs, which act as intermediaries between the issuer of debentures and the holders of debentures, the Sebi panel said there are already quite a few challenges before them in performing their obligations and that the function of DTs is still evolving. “Therefore, the committee is of the view that the review of ownership and governance of DTs is not the immediate priority.”

Source: Live Mint

SEBI puts in place new framework to check non-compliance of listing rules

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Sebi has put in place a stronger mechanism to check non-compliance of listing conditions, wherein exchanges will have powers to freeze promoter shareholding and even delist the shares of such defaulting companies.

The move is aimed at maintaining consistency and adopting a uniform approach in the matter of levy of fines for non-compliance with certain provisions of the listing regulations.

Under the new framework, exchanges would have the power to freeze the entire shareholding of the promoter and promoter group in non-compliant listed entity also holding in other securities, the Securities and Exchange Board of India (Sebi) said in a circular.

Besides, exchanges can levy fines on non-compliant company, move the stocks of such firms to restricted trading category and suspend trading in the shares of such entities.

Further, in case an entity fails to comply with the requirements or pay the applicable fine within six months from the date of suspension, the exchange will need to initiate the process of compulsory delisting.

The new rules would come into force with effect from compliance periods ending on or after September 30, 2018.

Grounds for suspension from listing include failure to comply with the board composition including appointment of women director and failure to constitute audit committee for two consecutive quarters; failure to submit information on the reconciliation of shares and capital audit report for two consecutive quarters.

According to new rules, Sebi has asked stock exchanges to impose penalties ranging from Rs 1,000-5,000 per day on violation of certain clauses of the listing agreement like non-submission or delay in submission of document related to the company’s financial and shareholding details, failure to appoint women director on the board.

Besides, the exchanges can levy a fine of Rs 10,000 per instance for delay in furnishing prior intimation about the company’s board meeting and delay in non-disclosure of record date or dividend declaration.

Such fines will continue to accrue till the time of rectification of the non-compliance to the satisfaction of the concerned recognized stock exchange or till the scrip of the listed entity is suspended from trading for non-compliance with the provisions of Listing Regulations.

Such accrual will be irrespective of any other disciplinary or enforcement action initiated by stock exchanges or Sebi.

Further, if a non-complaint entity is listed on more than one exchanges, the concerned bourses need to take uniform action in consultation with each other.

The board of directors need to be informed about the non-compliance and their comments need be made public so that investors can make informed decisions.

The exchanges would have to disclose on their websites the action taken against the listed entities for non-compliance of the listing conditions, including the details of respective including the details of respective requirement, amount of fine, period of suspension, freezing of shares, among others.

Every bourse is required to review the compliance status of the listed entities within 15 days from the date of receipt of information. Also, exchanges need to issue notices to the non-compliant listed entities to ensure compliance and pay fine within 15 days from the date of the notice.

If any non-compliant listed entity fails to pay the fine despite receipt of the notice, the exchange will initiate appropriate enforcement action including prosecution.

If the non-compliant listed entity complies with the Sebi’s requirement and pays applicable fine within three months from the date of suspension, the exchange will have to revoke the suspension of trading of its shares after seven days of such compliance and trading would be permitted only in ‘trade to trade’ basis for a week from revocation.

Source: Times of India

SEBI READIES P-NOTE FRAMEWORK FOR GIFT CITY

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Market regulator Sebi is readying a framework for issuance of participatory notes (p-notes) from international financial services centres such as GIFT City. It is in talks with FPIs, which act as issuers of p-notes, sources said. The move comes at a time when Indian bourses have terminated licensing of indices and data-feed agreements with their foreign counterparts. This will force overseas investors to either invest directly or come through GIFT City to trade in Indian securities.

The Securities and Exchange Board of India (Sebi) is readying a framework for issuance of participatory notes (p-notes) from the international financial services centres (IFSCs) such as GIFT City. P-notes are derivative instruments that allow overseas investors to invest in a domestic security without having to directly register with Sebi. The market regulator is in talks with foreign portfolio investors (FPIs), which act as issuers of P-notes, according to sources.

The move comes at a time when Indian bourses, including the National Stock Exchange (NSE), have terminated licensing of indices and data-feed agreements with their foreign counterparts.

The snapping of ties will force overseas investors, which use platforms like the Singapore Exchange (SGX) to trade in Indian securities, to either invest directly or come through GIFT City.

GIFT City is designed like an offshore trading platform with low transaction cost. Know-your-customer (KYC) documentation for p-notes issued from the IFSC would have to adhere to anti-money laundering laws, sources privy to the development said. The regulator, however, is expected to do away with strict trading restrictions on these instruments.

At present, no p-note subscriber is allowed to take a derivatives position in

■ Sebi to soon come up with a framework for issuance of p-notes from IFSC, Gujarat

■ The KYC documentation for p-notes from IFSC is likely to be on parwith p-notes issued by on-shore FPIs

■ However, Sebi is expected to relax the trading restrictions on p-notes issued from IFSC

■ On-shore subscribers of pnotes are not allowed to take any position in the Indian derivatives market

■ Indian stock exchanges recently terminated

the market for any other purpose apart from hedging. Also, there are restrictions on transfer of p-notes from one investor to another. According to experts, since the IFSC is a typical offshore destination where only derivatives are traded, Sebi is open to a less-stringent licensing of indices and data-feed agreements with foreign bourses

■ FPIs looking to invest in India can either invest directly or through the IFSC GIFT City, which offers tax benefits and liabilities

“Sebi recently conducted a meeting with some of the big FPIs that had sought the regulator’s permission to issue p-notes from the IFSC. The idea was to provide an entry to those investors who had lost trading opportunity due to the closing of offshore derivatives trading platforms like the SGX,” said another source privy to the development.

There was still a huge appetite among global funds for instruments such as p-notes because these did not amount to direct exposure, experts said. Despite the high KYC requirement, pnotes are still handy for investors that do not want to have a direct exposure to the Indian market due to restrictive laws in their own countries. P-notes also offer a cost advantage for funds that invest a marginal amount of their portfolio in Indian securities.

“The initial rules for p-note issuance from the IFSC could be much simpler with fewer restrictions on issuers since the whole concept was at an evolutionary stage. Once the instruments gain traction, the regulators concerned could consider tightening rules further,” said Tejesh Chitlangi, partner, IC Legal Universal.

The share of p-notes in total FPI investment has gone down significantly in the last decade with Indian regulators cracking down on their misuse. A decade ago, p-notes accounted for half of total FPI inflows. Now they just account for just 3.7 per cent.

Sebi in 2016 tightened KYC norms for p-notes. P-note issuers were asked to follow Indian anti-money laundering rules. Sebi also made it mandatory for FPIs to disclose the end beneficiary of Pnote subscribers.

Source: Press Reader

Foreign investors pump $3 billion into capital markets, forex at record high in January

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Foreign portfolio investors (FPIs) have invested a phenomenal $3 billion (close to Rs 18,000 crore) in India’s capital markets this month on expectations of high yields as corporate earnings are expected to pick up with the economy gathering momentum after the slowdown due to the chaotic implementation of GST.

The sharp increase in inflows comes after an outflow of over Rs 3,500 crore by foreign portfolio investors (FPIs) from the capital markets in December, data compiled by depositories shows. According to market analysts money pumped in by FPIs has played a key role in fuelling the bull run in the stock markets that saw both the Sensex and Nifty on a record breaking spree in recent weeks.

FPIs infused a net amount to the tune of Rs 11,759 crore in stocks and Rs 6,127 crore in debt during January 1-25 — translating into net inflows of Rs 17,866 crore. For the entire 2017, FPIs invested a collective amount of Rs 2 lakh crore in the country’s equity and debt markets.

The inflow in the current month can be attributed to anticipation of earnings recovery and attractive yields which is expected to further strengthen inflow from foreign investors in the current financial year, said Dinesh Rohira, CEO of 5nance, an online platform providing financial planning services.

However, Quantum MF Fund Manager-Fixed Income Pankaj Pathak believes that FPIs may not be able to repeat this showing in 2018 as withdrawal of liquidity and rate hikes in developed economies pick up. This would provide them with alternative avenues of investment.

The FPI investments have also helped to bolster the country’s foreign exchange reserves which touched an all-time high of USD 414.784 billion in the week to January 19, Reserve Bank data showed. The RBI data showed that the forex reserves rose by USD 959.1 million to touch a record high during the reporting week. In the previous week, the reserves had touched USD 413.825 billion after it rose by USD 2.7 billion.

The reserves had crossed the USD 400-billion mark for the first time in the week to September 8, 2017 but have since been fluctuating. But for the past four weeks the figure has shown a continuous rise. Higher foreign exchange reserves lead to a stronger rupee which in turn reduces the cost of imports as fewer rupees have to be paid to buy the same amount of dollars to pay for items such as crude oil.

A higher foreign exchange kitty also provides a comfortable cushion to finance imports especially at a time when crude prices are shooting up in the international market and the country’s trade deficit has been growing. However, while FPI inflows add to the forex reserves they are considered “hot money” as they can leave Indian shores at short notice and this could send the rupee into a tailspin.

A senior finance ministry official said that foreign direct investment (FDI) is a more stable source of funding for the economy and since it also creates jobs and incomes the government is keen to see an increase in such investments. The Prime Minister’s trip to Davos was aimed at achieving this goal, he pointed out. He said that the government has been working on the ease of doing business which has seen a sharp increase in FDI inflows and this policy will continue in the forthcoming budget. At the same time the government is keen FPI inflows are not disrupted due to tax levies on stocks that create uncertainties, he added.

 

Source: Business Today