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Bounty from funding agencies on the cards

Shaji Vikraman

NATTILY dressed investment bankers pounding the streets of Mumbai, especially Nariman Point, revel in mouthing what they call the flavour of the month or season to hacks who are still wet behind the ears. This can be, for instance, on ICE stocks, telecom companies, enterprise value, EVA and other gobbledygook.

The flavour of the week just past was the tax breaks that foreign institutional investors (FIIs) routing their portfolio investments through Mauritius have gained in the last few years. This practice has now come under fire. The Finance Minister, Mr. Yas hwant Sinha, had to defend himself on a sultry Sunday afternoon against allegations that he was soft towards Mauritius-based FIIs prompted by consideration that his daughter-in-law, Ms. Punita Kumar Sinha, an overseas fund manager, runs one such India-de dicated fund.

From a policy angle, the flavour of the season may spell bad news. For, given the mud which has been thrown at the Government and an ongoing public interest litigation on this issue, the dreaded three-letter word in North Block could be FII.

A casualty of this in the near term appears to be the proposal to force unlisted domestic companies which issue equity abroad to list in India and also on allowing limited fungibility of shares. The second proposal has more impact on the FIIs.

In the current scenario, Government officials baulk at the thought of coming up with a policy which even by a long shot may be viewed by critics as one which benefits the FIIs. So the bet is that these proposals may be put on ice till the heat and the du st generated mainly in New Delhi on FIIs subside.

The only thing relating to overseas investment which did the rounds briefly at the Ministry was an internal clarification on the ceilings for overall portfolio investment in the equity capital of a listed Indian company. Technically, FIIs can invest up t o 40 per cent while NRIs, OCBs and PIOs can pick up shares from the secondary market aggregating up to ten per cent of a company's capital, thus making it 50 per cent.

Further, if the company passes a resolution at its general body meeting, another 14 per cent can be bought up by NRIs and OCBs taking the portfolio investment in an Indian company to 64 per cent.

Against this background, the Finance Ministry may well be in the position of tying both its hands and feet on how to prescribe sub-ceilings for different classes of investors in insurance ventures. Having given a solemn word to the Parliament that foreig n equity in whatever form would not exceed 26 per cent, unravelling this knot would be tricky, Ministry officials acknowledge.

These knotty issues apart, this week holds the promise of triggering off the long delayed fund flows from the multilateral institutions. For on June 6, the IBRD board is set to meet to approve of a $75-million assistance to the Union Government for spect rum management. After the nuke tests in May 1998 when the freeze was imposed on fresh lending to India, this will be the first non-Basic Human Needs (BHN) loan to be sanctioned.

This is to be followed up immediately on June 8 with a major dollop for the road sector in India of over $500 millions. Promises have been given of these loans being waved through on the back of a possible abstention at the meetings by Uncle Sam and the Japanese who have been very vociferous on the nuke tests. Otherwise, this could be managed by widening the definition of a BHN loan, say officials.

If this is swung, then the Asian Development Bank will play ball swiftly. So once these loans come through, rest assured that the international agencies will not be found wanting in giving a better certificate (upgrading the sovereign rating) to India.

The action on multilateral institutions will be complete next week with the visit of the new Managing Director of the International Monetary Fund (IMF), Mr. Horst Koehler, to India. A visit to North Block on Monday to meet the Finance Ministry top brass and later the RBI management is scheduled. India's outstanding loan to the IMF is now just $53 millions. What the `cookie cutter economists' of the institution as Joseph Stiglitz dubbed them will discuss with officials here on missions is anybody's guess .