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Investment- Shanmugam IAS academy in coimbatore city - UPSC
Investment

SURCHARGE ON FOREIGN PORTFOLIO INVESTMENT

What’s in news?

Market participants are confident on removal of the surcharge on capital gains on shares for both foreign and domestic investors.

Key data’s:

  • In a bid to stabilize the faltering economy, Union Finance Minister Nirmala Sitharaman announced removal of the surcharge on capital gains on shares for both foreign and domestic investors, provided an upfront Rs 70,000-crore equity infusion into public sector banks to boost lending, and unveiled measures to push automobile sales.
  • The pre-Budget position is restored as surcharge on long- and short-term capital gains arising from transfer of equity shares was withdrawn.
  • The steps come in the wake of a slide in equity markets and a slowdown in demand that has impacted industries ranging from automobiles to items of daily use such as biscuits and groceries.
  • While the government refrained from providing an outright fiscal stimulus given the tight fiscal deficit target.
  • FM Sitharaman said more policy measures will be taken in the next couple of weeks including for the housing sector. 
  • The government did not indicate any reduction in GST rates in the automobile sector, it deferred higher registration fee, asked government departments to replace old cars and doubled the depreciation available to 30 per cent on cars.

Foreign Portfolio Investment (FPI):

  • Foreign portfolio investment (FPI) consists of securities and other financial assets held by investors in another country.
  • It does not provide the investor with direct ownership of a company’s assets and is relatively liquid depending on the volatility of the market.
  • A foreign portfolio investment is a grouping of assets such as stocks, bonds, and cash equivalents.
  • Along with foreign direct investment (FDI), FPI is one of the common ways to invest in an overseas economy.
  • FDI and FPI are both important sources of funding for most economies.
  • Some benefits that come to investors from utilizing foreign portfolio investments include:
    • Portfolio diversification: FPI gives investors a fairly simple way to diversify their portfolio internationally.
    • International Credit: FPI gives investors a larger credit base because they are able to access credit in the foreign countries that they have large amounts of investment in.
    • Benefits from the Exchange rates: If an investor has an FPI in a foreign country with a stronger currency than their own country the difference in exchange rates between the two countries can benefit the investor
    • Access to a larger market: Often times markets may be larger and less competitive outside of ones home country. For example, the market is much more competitive in the United States of America than in other less developed economies. Investors can take advantage of the less competitive markets internationally by using these Foreign portfolio investments.

 

Links to note:

https://www.iasipstnpsc.in/cess-tax/

https://www.thehindu.com/business/tax-surcharge-reversal-could-revive-fpi-flows-experts/article29236005.ece

https://www.investopedia.com/terms/f/foreign-portfolio-investment-fpi.asp

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