That the left hand of the gargantuan 18 million strong neta-babu brotherhood that micro-manages the country through thousands of superfluous laws, rules and regulations, doesn’t know what the right hand is doing, is hardly a national secret. A case in point is schizophrenia about foreign investment in the Indian economy required to increase the number of tax-paying businesses and generate employment. The right hand is begging for incremental FPI (foreign portfolio investment) in the stock market to mobilise capital for domestic companies to expand and grow. Conversely the left hand is hell-bent on subjecting foreign investors to minute scrutiny to which domestic businessmen and investors have become accustomed. Indian bureaucrats seem unaware of the basic principle of company law that corporations are juristic personalities in their own right, and that lifting the corporate veil should be the exception than the rule.
According to a front page report in the Economic Times (August 21), the Securities and Exchange Board of India (SEBI) is all set to issue a mandate making it compulsory for FPIs which deploy more than 50 percent of investment in a single corporate group, to reveal their ultimate beneficial owners (UBOs). According to the ET report, this requirement has been prompted by the recent driving down of the prices of equity shares of the Adani Group by the US-based Hindenburg Research.
Although because of four decades of socialism native investors in the stock markets have learnt to endure routine lifting of the corporate veil, the premise behind this proposed rule — that all FPIs are crooks out to make a quick buck — is likely to prove offensive. Government and SEBI need to determine whether the economy requires foreign investment. If it does, as it’s plain, it shouldn’t look a gift horse — because clearly investing in India is a high-risk enterprise — so closely in the mouth.