profits are eligible under this policy. the ministry of external affairs and indian missions abroad would be associated right from the beginning of the process for a buyout. the government is currently evaluating proposals to facilitate acquisition of strategic assets, particularly the energy sector, through a special investment vehicle or through cash rich psus in the field. g. emerging issues in outward fdi use and abuse of multi - layered structure one contentious issue which needs to be addressed for providing a transparent policy framework for outward fdi relates to multi - layered structures. the motivations range from genuine business / commercial considerations to taxation benefits which are available to any global investors. on the flip side at times the underlying motive could be to create opacity through a labyrinth of structures for reasons unjustified on business grounds or from the point of view of home country ’ s interest. hence, there is a need to have a greater clarity in our approach in this regard. controlled foreign companies under direct tax code to incentivize the overseas investments, in the last union budget, government had announced a 50 per cent reduction in the tax rate in respect of dividend inflows from jv / wos. taxation in respect of overseas investments under the “ controlled foreign companies ” ( cfc ) norm of the proposed direct tax code ( dtc ) would have implications for indian outward fdi. it may, however, take a few years before we come to any definitive conclusions on their implications after dtc is introduced. impact on current account deficit the build - up in the foreign exchange reserves had supported the initiatives of liberalisation of many of the capital controls including the outward fdi from india. india being a current account deficit ( cad ) economy, there is a need to closely monitor the capital outflows going from the country. we need surplus on capital account to finance india ’ s growing current account deficit and also have to keep the level of foreign exchange reserves at a comfortable level given several demands on the reserves. therefore, unlimited capital outflows for outward fdi could have significant implications for sustainability of india ’ s cad and external debt profile. bis central bankers ’ speeches impact on domestic investments another important factor that warrants close monitoring of capital outflows is implication for domestic investment. it needs to be ensured that overseas investment by indian companies do not crowd - out domestic investments. even though both domestic capital formation and overseas fdi investments have increased concomitantly in recent years, potential implications of rising trend in outward f

resolution mechanism for managing the failure of a large systemic bank or nonbank financial institution, to reduce the economywide costs of such failures and, by making them less disruptive, further reduce moral hazard by diminishing expectations of future public support. ensure that the largest and most interconnected financial institutions – whether or not they are chartered as banks – face even more stringent prudential standards, in order to reduce moral hazard for the largest firms and lower the probability of their failure to below that of smaller and less systemically important institutions. strengthen financial market infrastructures so that when failures inevitability occur, the shocks generated by these failures are dampened, not amplified as they propagate through the financial system. broaden the oversight of the financial system in order to identify sources of systemic risk that may emanate from nonbank financial firms or from other areas of activity. turning first to the basel iii capital and liquidity standards agreed upon by the governors and heads of supervision committee ( ghos ) in basel last month, i believe these standards address some of the major shortcomings revealed by the crisis. in particular, the new standards will require banking organizations to significantly increase the amount of highquality, loss - absorbing capital that they hold ; significantly improve risk capture in trading, counterparty credit, securitization and other activities that the prior regulatory capital requirements did not adequately capture ; make it more expensive for banks to provide liquidity guarantees to shadow banks ; constrain the leverage that banking companies can take by introducing a credible, non - risk - based backstop ; and increase the capacity of banks to absorb shocks that might temporarily impede their ability to access short - term funding markets. while these changes apply directly only to large internationally active banks, they will have wider ramifications for the financial system as a whole, including nonbanks and the capital markets. furthermore, i believe that the agreement achieves an appropriate balance between significantly increasing the minimum capital and liquidity requirements for the major banks, while doing so in a way that recognizes the current state of the global economy and that seeks to minimize adjustment costs. the international regulatory community consciously has been willing to trade off a relatively slow phase - in period for the new standards in order to reach a much higher level of standards. the new capital rules are intended to provide strong incentives for banks to change their business models in ways that make the system more stable and reduce the negative impact their actions have on others – for