As global economies start falling to recession, India saw a 16 per cent drop in the inflow of foreign investments into the country. This is despite regulations that allow 100 per cent foreign investment via automatic route in sectors such as manufacturing, telecom and finance.
In a recent update, the Securities and Exchange Board of India has asked foreign funds investing in India to reveal details of their parent organisation for more transparency about ownership.
Adani-Hindenburg fiasco triggers changes
The update was communicated to the funds by SEBI through a letter, following an investigation into allegations of violations by foreign investors of the Adani Group.
The Supreme Court panel mentioned that lack of information from offshore entities was a major factor preventing SEBI from reaching a conclusion.
SEBI also pointed out foreign portfolio investor registration being given to bank branches, and asked lenders to identify senior officers of legal entities as beneficial owners.
Ensure transparency or pull out
In order to identify the source of funds flowing into Indian firms, all funds need to identify parent companies by September 2023, or exit India by March 2024.
Reports also suggest that since the enquiry into Adani's FPIs have hit a dead end, SEBI wants to identify the beneficial owners of money being moved via foreign investments.
In 2019, the opaque structure clause had been removed, making it mandatory for FPIs to only identify the last natural person above the one with an interest in the fund.
