MUMBAI, India, Aug 9, (AP): India may allow foreign individuals to invest directly in its stock markets, said two people familiar with a new report prepared for the Ministry of Finance that recommends loosening capital controls.
The recommendation comes as top policymakers worry that global risk aversion could dampen foreign capital inflows, which India needs to fund its widening current account deficit and meet credit demand.
“There is already a first level evaluation. They are giving it now to the regulators to examine,” said Ashvin Parekh, a partner at Ernst & Young in Mumbai, who helped advise the committee that prepared the report. “It’s at an early stage,” he said. A second person involved with the report, who spoke on condition of anonymity because the document is not yet public, also confirmed the recommendation.
India’s financing needs are huge, especially for infrastructure projects, which some estimate could cost up to $1 trillion. The government is also selling off minority stakes in large state-run companies as it seeks to plug the fiscal deficit.
But there are few long-term sources of capital available in a nation where investments by pension and insurance funds are tightly regulated and commercial banks are still the primary source of corporate finance.

A 16-member committee was set up last November to broadly evaluate capital controls in India, covering individual and institutional inflows as well as private equity and venture capital investment. They handed their report, which has not been made public, to the Ministry of Finance last week.
In the central bank’s July policy review, governor D. Subbarao warned that global risk aversion could slow capital inflows even as India’s current account deficit widens.
“This may constrain domestic investment, which is critical to achieving and sustaining high growth rates,” he wrote in his policy note.
Currently, India allows foreign institutions to invest in markets directly, but not individuals.
Parekh calculated that if it did, inflows from foreign individuals could total up to seven percent of total investments in listed stocks within five years.

He said individual investors are attractive to India because they tend to be stickier than institutional investors, who have a habit of making quick exits when the going gets tough — a lesson India was painfully reminded of during the Great Recession, when foreign institutions pulled their money out and sent the rupee into a tailspin.
“The institutional money can take flight and vanish. Retail will tend to be there for a longer period,” he said.
India has strict “know your customer” norms, however, which would be harder to meet with overseas investors.
“The regulator has a larger challenge because the identity of the real investors has to be ascertained,” Parekh said.
India has again gained favor with global investors thanks to a faster than expected recovery and economic growth that hit 8.6 percent in the January-March quarter. Foreign institutions have poured $11.2 billion into Indian equities since January, up from $7.5 billion the same period last year.
Ministry of Finance officials declined comment. The Reserve Bank of India said it has yet to receive a copy of the report.

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MUMBAI, India: Vehicle sales in India jumped 37 percent in July as domestic demand remained strong despite rising prices.
Car sales alone rose 38 percent in July over a year earlier to 158,764 vehicles, the Society of Indian Automobile Manufacturers said Monday. Commercial vehicle sales rose 37 percent to 51,481 vehicles.
Growth was helped by slow sales this time last year as well as buying ahead of India’s festive season and a change in emissions norms in October which promises to raise prices.
“Sales are pretty good,” said Angel Broking analyst Vaishali Jajoo. “The economy turning back in a positive direction and normal monsoons are also supporting it.”
Vehicle exports rose 9.2 percent in July thanks to strong commercial vehicle performance. But car exports rose only 2.1 percent, as companies — like market leader Maruti Suzuki — facing capacity constraints put India’s fast-growing market first.
“Maruti diverted their sales toward domestic demand because they have a capacity constraint on the export front,” Jajoo said. “Some players are trying to put their thrust on the domestic market because demand is higher and there is no currency fluctuation impact.”
Ford exported its first Figo cars from India to South Africa on July 5, sending a consignment of 1,200 vehicles. The company plans to export 5,000 by year’s end, part of the US automaker’s drive to use India as a small car production base.