P-Notes: Arun Jaitley rules out knee-jerk action on SIT views

The Modi Government will not immediately act on a key recommendation to check black money of the Supreme Court- appointed Special Investigation Team (SIT) related to identifying final beneficial owners of Participatory Notes (P-Notes), Union Finance Minister Arun Jaitley said on Monday.

“It is too early to say what view the government would take but it will certainly not take any such action in a knee-jerk reaction, particularly one which has any adverse impact on investment environment,” Mr. Jaitley told reporters.

The comments came as Sensex slumped over 580 points and rupee slid to 64.15 to a dollar in response to the SIT recommendation against P-Notes that Government had released on Friday. Later, during the day, the Sensex recovered, and closed 551 points down at 27561.38, its weakest closing in over five weeks.

Revenue Secretary Shaktikanta Das told reporters that there was no need to ‘panic’ as the Finance Ministry would take a view on the SIT suggestions only after consultations with the stock market regulator, the Securities and Exchange Board of India (SEBI), the Reserve Bank and other institutions.

“At the moment, there is no need to panic. We will take views after consultation with stakeholders, including SEBI, RBI and related institution... There is no need for markets to react in any particular manner,” Mr. Das told reporters.

According to the SIT report released on Friday, it has recommended that SEBI put in place regulations for identifying individuals holding P-Notes and take other steps to curb black money and tax evasion through the stock market route.

P-Notes are offshore derivative instruments a large number of foreign investors use for parking funds in the equity market without disclosing their identity to the market regulator, SEBI. Mostly, high net worth individuals, hedge funds and other foreign institutions tap this channel to invest in India through foreign institutional investors (FIIs). Tax authorities suspect that a huge chunk of these investments could in fact be Indian money masquerading as foreign funds.

A similar recommendation in 2007 had triggered a drop in stock prices, following which the then Finance Minister P. Chidambaram, too, had announced that the Centre would not go in for such measures.

Investments through P-Notes into the stock market touched a seven-year high of Rs.2,85,000 crore in May. Of the total FII investments into India since 2009, about 15-20 per cent flows in through the P-Notes route.

This is lower than the 25-50 per cent levels P-Notes used to make up of the total FII investments till 2007 after which SEBI tightened some of the disclosure norms for these instruments.

Finance Ministry will take a view on the SIT suggestions only after consultations with the Securities and Exchange Board of India, the Reserve Bank and other institutions.

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