The Union Finance Ministry has constituted a working group to recommend changes in the existing policies on FII (foreign institutional investor) inflows and participatory notes (PNs), with a view to attracting more foreign portfolio investments.

The move comes despite the rising apprehensions in some quarters over the surge in foreign capital flows and even calls to tax/control the same, as it is leading to steeper appreciation of the rupee.

The rupee has appreciated over five per cent against the dollar in the last six months, hitting badly the export sector.

Portfolio investment is a route through which foreign entities can purchase shares or bonds or money market instruments but without enjoying ownership or management control of the entities they invested in. Participatory notes are one of such routes through which unregistered entities invest in the domestic stock markets.

The 16-member group on portfolio investments, to be headed by UTI MF Chairman and Managing Director U. K. Sinha, will also review the policies on other foreign portfolio investment by non-resident Indians (NRIs) and venture capital funds.

The committee has been given four months to submit the report. The group has been asked to review the existing policy on foreign portfolio inflows and suggest rationalisation with a view to encouraging foreign investment and reduce policy hurdles.

The group is also expected to identify challenges in meeting the financing needs of the economy through foreign investment.

The panel would also examine the rationale of securities transaction tax and stamp duty.

There are already contrasting views from the Reserve Bank of India and the Finance Ministry over PNs.

More In: Markets | Business