Lok Sabha Question No. 3391 (UNSTARRED), answered on 2019-12-09
Subject: Participatory Notes
Ministry: FINANCE
Asked by: K. Shanmuga Sundaram

## GOVERNMENT OF INDIA MINISTRY OF FINANCE DEPARTMENT OF ECONOMIC AFFAIRS

## LOK SABHA UNSTARRED QUESTION NO. 3391

TO BE ANSWERED ON MONDAY, 9th DECEMBER, 2019/AGRAHA YANA 18,1941 (SAKA)

## Participatory Notes

## 3391: SHRI SHANMUGASUNDARAM K

Will the Minister of FINANCE be pleased to state:

- (a) the total amount of Participatory Notes (P-Notes) invested in India during the last three and the current year; years
- the steps taken by the Government to verify the High Net Worth Individuals; being
- b) whether there is a declining trend in this regard and if s0, the reasons for the declining trend;
- whether the   Securities and Exchange Board of India has relaxed the rules for its disclosure and if\_ the reasons therefor; and SO,
- (e) the percentage of P-Notes to total Foreign Direct Investment?

## ANSWER

## MINISTER OF STATE FOR FINANCE (SHRI ANURAG SINGH THAKUR)

(a): The total amount of Offshore Derivative Instruments (ODIs), also knows as Participatory Notes (PNs), invested in India during the last three years and the current year is provided in the table below:

| Financial Year             | Notional value of ODPs on Equity, Debt and Derivatives (INR cr)   |
|----------------------------|-------------------------------------------------------------------|
| 2016-17                    | 178,437                                                           |
| 2017-18                    | 106.403                                                           |
| 2018-19                    | 78,140                                                            |
| April 2019 to October 2019 | 76,773                                                            |

Source - SEBI

(b) Yes Sir: There is a declining trend in the investments in India. The notional value of ODI's (on as a percentage   of Asset Under Custody of Foreign  Portfolio Investors (FPI) has reduced from 55.7% in June 2007 to 2.3% in October 2019.

In order to ensure transparency SEBI has been constantly tightening norms for taking exposure in Indian  Capital  Markets through ODI PN route. The recent measures taken by SEBI include imposition of a regulatory fee of USD 1000 on each ODI subscriber, mandatory KYC for all ODI subscribers, monthly reporting of all ODI transactions, of suspicious transaction reports by ODI issuers etc  These measures have increased the compliance cost for ODI issuing FPI's and has made ODI a less attractive investment route as compared to taking direct registration and investing in India as an FPI: filing

(c) No separate verification of High Net Worth Individuals (HNI's) as a class is undertaken by the Government of India in terms of tax assessment. However the Income Tax Returns filed by all assessees; including HNI's are subjected to risk assessment for selection of cases for scrutiny by the Income Tax Department.

(d) SEBI has been   rationalizing  the disclosure   and   reporting norms in line with the FPI Regulations/guidelines from time to time in order to check misuse of these instruments and strengthen   the ODI Regulatory Framework for transparency in  disclosures in the interest of securities market.

(e) SEBI has permitted only Foreign Portfolio Investors (FPI) to issue ODI. During the 19, the notional value of ODIs as a percentage of the total Assets under Custody (AUC) of FPIs was 2.3%. year