INTRODUCTION

Presented By:

Aastha Dhall

Abhishek Vashistha

Garima Arora

Puja Chakraborty

Sanchay Gabrani

Siddhant Vashistha

Managing the surge in foreign inflows:

FOREIGN INVESTMENTS

Investments made by residents of a country in financial assets and production process of other country

FOREIGN DIRECT INVESTMENT (FDI)

Foreign Entity wants to enter the Indian market

Portfolio Investment Scheme (PIS) FII

But how?

FII’s

Institutions like pension funds, mutual funds, investment trusts, asset management companies, nominees companies and incorporated portfolios

Who are they?

Where they can invest?

• Under securities such as shares, debentures and warrants issued by Indian companies which are listed/ to be listed on the Stock Exchange in India.

• The schemes floated by domestic mutual funds traded on the primary and secondary markets.

• In government securities including treasury bills and debt securities of Indian companies.

Investment Limits for FII’s in India

• Ceiling for overall investment of FII’s: 24 % of the paid up capital of the Indian company

• Can be raised upto the sectoral gap/ statutory ceiling subject to the approval of the board and the general body of the company.

Tools deployed by India to efficiently manage forex inflows:

India has an arsenal of non-tariff-type barriers to foreign inflows in the form of limits:• controls on external commercial borrowings, • sector-specific limits and in some cases, • prior approvals on foreign holdings in the equity capital of Indian companies.

In addition, foreign investors are required to deal with high levels of uncertainty relating to several unsettled issues in tax administration and bureaucratic controls on foreign investor access, etc.

Sector Specific Foreign Investment in India

• Hotel and Tourism Sector:

100 % FDI is permissible

• Insurance Sector: FDI upto 26% is allowed on the automatic route subject to obtaining licence from Insurance Regulatory & Development Authority (IRDA)

Trading Sector: FDI up to 51% provided it is primarily export activities, and the undertaking is an export house/trading house/super trading house/star trading house

Power Sector:Up to 100% FDI allowed in respect of projects relating to electricity generation, transmission and distribution, other than atomic reactor power plants. There is no limit on the project cost and quantum of foreign direct investment.

Drugs & Pharmaceuticals :FDI up to 100% is permitted on the automatic for manufacture of drugs and pharmaceutical, provided the activity does not attract compulsory licensing or involve use of recombinant DNA technology, and specific cell / tissue targeted formulations.

WHAT IS TOBIN TAX?

Tobin Taxes are excise taxes on cross-border currency transactions. They can be enacted by national legislatures, followed by multilateral cooperation for effective enforcement. The revenue should go to global priorities: basic environmental and human needs. Such taxes will help tame currency market volatility and restore national economic sovereignty.

HISTORY

The name Tobin Tax and the original concept derives from James Tobin, a Ph.D. Nobel-laureate economist at Yale University.

In 1978, James Tobin, a Nobel Prize-winning economist, first proposed the idea of a tax on foreign exchange transactions that would be applied uniformly by all major countries. A tiny amount (less than 0.5%) would be levied on all foreign currency exchange transactions to deter speculation on currency fluctuations. While the rate would be low enough not to have a significant effect on longer term investment where yield is higher, it would cut into the yields of speculators moving massive amounts of currency around the globe as they seek to profit from minute differentials in currency fluctuations.

FEATURES The Tobin Tax is a proposed transaction tax on currency

speculation. The concept comes from James Tobin, a Nobel laureate economist at Yale University. Here is how it would work: Currency speculators trade at the rate of over one trillion dollars each day. Speculative transactions would be taxed at a tiny percent of volume (.1%-.5%), once per transaction. Non-speculative transactions would be exempt, about 10-15% of the daily volume. The tax would discourage overnight or short-term currency trades, the most volatile, while leaving longer-term investments barely effected. Dangerous currency volatility would thus be reduced, and national macroeconomic autonomy restored. Parts of the revenue would go to international trust funds, other parts to national budgets. Both parts could be used to fund worthy projects.

Why is support growing for such a tax?

Interest has grown rapidly in such a mechanism, as the pace of foreign exchange transactions and financial deregulation has accelerated over the past decade. Today approximately US$1 trillion worth of currency is traded every day in unregulated financial markets. Only 5% of this activity is related to trade and other real economic transactions. The other 95% is simply speculative activity as traders bet on exchange rate fluctuations and international interest rate differentials. This kind of financial speculation plays havoc with national budgets, economic planning and allocation of resources. Governments and citizens are becoming increasingly frustrated by the whimsical and often irrational activities in global financial markets that have such an influence over national economies and are seeking some means to curb damaging, and unproductive, speculative activity.

This sounds good, but is it politically possible? There are two key political issues involved

with putting such a tax in place. 1. It would be necessary to forge agreement

amongst the major countries to implement a uniform tax, and

2. there would have to be agreement on the collection and distribution of the tax revenue.

Perhaps more significant is the fact that many governments face large deficits and strong anti-tax populism among the electorate and are looking for new sources of tax revenue that are not politically suicidal.

It is possible that some members of the financial community might support this tax. The pace and the volumes traded in the markets has added a level of risk to doing business, for as much as great profits can result from speculation so can great losses . Some experienced business people may see the value of the limited risk of more stable markets, suggesting if not the Tobin proposal, other strategies to limit the volatility of the current global money system.

PRINCIPLES OF TOBIN TAX

To alleviate human suffering like expensive food and basic items, widening gap between rich and poor, the strain on the global environment, and high rates of unemployment occurring due to currency devaluation.

To help government central banks to adequately protect the currency of their own nations as foreign currency exchange has grown recently to over a trillion dollars .

To shrink the volume of daily currency trading from its present trillion dollar daily level and restore each nation’s ability to control its own currency, as well as generate revenue.

Need to be adopted by major currency nations , to be effective, rather than universal adoption.

Since the revenue could be quite large, over one hundred billion by some estimates so basic human needs and basic environmental needs must be met first, such as those addressing environmentally sustainable development, climate change, and hunger.

Administering agencies should cooperate with local civil society to provide actual services for basic needs, such as disaster aid and food distribution, small-scale agriculture and reforestation, health clinics and disease prevention, local water systems and pollution control mechanisms with the help of revenue generated.

Proposals range from .1% to .5% per transaction. Longer-term investments occur less often, so would not be adversely affected by this small tax, and the overall remaining volume would be enough to create sizable revenue.

Should be Political will for successful adoption, and grassroots support to educate decision makers regarding this opportunity.

Tobin Tax aim-reduce exchange rate volatility

It discourages short-term capital movements and results in greater exchange rate stability. It will help in eradicating financial speculation which plays havoc with national budgets, economic planning and allocation of resources

Tobin Tax can help in generating significant sums from the global currency trades

It will help the long-term investors to dominate the market and stabilise their actions

Today approximately US$3.2 trillion worth of currency is traded in unregulated financial markets. Only 5% of this activity is related to financial trade. The other 95% is simply speculative activity as traders bet on exchange rate fluctuations.

Each trade would be taxed at 0.1 to 0.25 percent of volume (about 10 to 25 cents per hundred dollars)

This would discourage short-term currency trades, about 95 percent speculative, but leave long-term productive investments intact.

DISADVANTAGES

Tobin tax cannot distinguish between finance trading & speculative noise trading

Decline in currency flows may harm functioning of markets and lead to poor liquidity in currency markets.

Tax may be insufficient to prevent speculative flows and currency movements which are driven by economic fundamentals.

Tobin tax can be evaded to some extent by future markets & derivatives.

A tax may discourage 'hedging' which is a way of insuring against currency movements rather than discouraging speculation.

POSITIVES OF FII’S

Problem of Unavailability of corporate debts can be solved with the help of Fii’s.

Increases Forex Reserves. Increases Domestic Savings and

Investments. Large availability of capital.

NEGATIVES OF FII’S

Problem of Inflation Reduces flexibility of policymakers. Hot money False representation of economy. Can’t be used for long run. Problem for small investors.

CONCLUSION

THANK YOU!!!