indicating that the volume of trading in Indian derivatives in the Singapore
market is almost as robust as that in the Indian market. This suggests that the
Indian capital markets are being exported overseas. Investors are able to enjoy
the investment benefits in Indian underlying assets or investments without
actually investing in India.
of two reasons. The first is that the domestic system suffers from
inefficiencies that compel investors to migrate to a more suitable system. The
second is a case where investors might be seeking to invest in jurisdictions
that are less stringently regulated, a classic case of the “race to the
bottom”. In this scenario, it is clearly the first reason, particularly due to
the uncertainty in the Indian tax regime in the last year or so.
phenomenon has occurred in India. The participatory notes structure was devised
in the last few years precisely for this reason, as I have discussed in this paper.
It remains to be seen
whether the Finance Minister’s announcement in today’s Budget regarding the
ease of doing business in India or steps in furtherance of that are likely to
change the sentiment in the near future.