Working Group on Foreign Investment in India

This report examines foreign investment law and capital flow management pol- icy as it is manifested in the norms, institutions and processes of law. The Group examined the structure of regulation and the ways in which practices, institutions, and procedures inflect and shape these policy decisions. The report also offers, alongside an economic policy piece contextualising these flows in relation to the Indian and global economy, close scrutiny of the structures and incentives created by the law in the main areas of our mandate; capital flows management regulations with regard to listed and unlisted equity, corporate and government securities regulation and derivatives trading. The focus of the Group has been to identify procedures and practices which can help avoid uncertainty, delay or unequal treatment and to recommend measures which could simplify the portfolio investment environment; at the same time laying a strong emphasis on KYC norms.

Role: Research Team Member

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Financial Sector Legislative Reforms Commission

The Financial Sector Legislative Reforms Commission was constituted by the Government of India, Ministry of Finance, in March, 2011. The setting up of the Commission was the result of a felt need that the legal and institutional structures of the financial sector in India need to be reviewed and recast in tune with the contemporary requirements of the sector. The institutional framework governing the financial sector has been built up over a century. There are over 60 Acts and multiple rules and regulations that govern the financial sector. Many of the financial sector laws date back several decades, when the financial landscape was very dierent from that seen today. For example, the Reserve Bank of India (RBI) Act and the Insurance Act are of 1934 and 1938 vintage respectively. Financial economic governance has been modified in a piecemeal fashion from time to time, without substantial changes to the underlying foundations. Over the years, as the economy and the financial system have grown in size and sophistication, an increasing gap has come about between the requirements of the country and the present legal and regulatory arrangements. Unintended consequences include regulatory gaps, overlaps, inconsistencies and regulatory arbitrage. The fragmented regulatory architecture has led to a loss of scale and scope that could be available from a seamless financial market with all its attendant benefits of minimising the intermediation cost. A number of expert committees have pointed out these discrepancies, and recommended the need for revisiting the financial sector legislations to rectify them. These reports help us understand the economic and financial policy transformation that is required. They have defined the policy framework within which reform of financial law can commence. The remit of the Commission is to comprehensively review and redra the legislations governing India’s financial system, in order to evolve a common set of principles for governance of financial sector regulatory institutions. This is similar to the tradition of Law Commissions in India, which review legislation and propose modifications. The main outcome of the Commission’s work is a draft ‘Indian Financial Code’ which is non-sectoral in nature (referred to as the draft Code throughout), which is in Volume II of the report and replaces the bulk of the existing financial law.

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Endowment effects in the field: Evidence from India’s IPO Lotteries

Winners of randomly assigned initial public offering (IPO) lottery shares are significantly more likely to hold these shares than lottery losers 1, 6, and even 24 months after the random allocation. This finding persists in samples of highly active investors, suggesting along with additional evidence that this “endowment effect” is not driven by inertia alone. The effect decreases as experience in the IPO market increases, but remains even for very experienced investors. These results provide field evidence derived from the behavior of 1.5 million Indian stock investors consistent with the laboratory literature that documents endowment effects for risky gambles.

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