The dissenting views of the Tarapore Committee members are bound to find a lot of support among capital market intermediaries who have been arguing for hedge funds to be allowed to invest directly in India. They are of course, unconcerned about regulatory issues or the fact that hedge funds are notoriously secretive about their investors.

At its core, the large proportion of domestic money that is apparently hiding behind PNs exposes bad policy making, poor revenue collection systems and the Finance Ministry’s double standards. The Ministry is so focussed on squeezing more taxes out of legitimate domestic tax payers (fringe benefit tax, cash withdrawal tax, cash-flow statements and passing on tax collection responsibility to the people) that the bigger leakage of taxable income apparently escapes its attention. Consequently, industrialists and traders continue to find it profitable and exceedingly easy to keep billions of dollars abroad and also to route it back to India in order to profit again from our monster bull market. Worse, they enjoy tax exemptions by routing money through tax havens.

Only last week, an industrialist blew up Rs 50 million on his birthday bash in London when his Indian companies are on the verge of sickness despite a corporate debt restructuring exercise that saw several lenders sacrificing several hundred crore rupees each just a few years ago. What better evidence does the government need about the ease with money is transferred overseas and flaunted?

The biggest beneficiaries of our bad policies are indeed foreign banks and intermediaries who earn hefty fees for channelling this money through appropriate vehicles and concealing true ownership. The question is, how much should we worry about the fees earned by foreigner intermediaries on this money? Won’t direct investment by hedge funds only put domestic investors at a disadvantage? Hedge funds are unregulated in most markets, completely non-transparent about their investors as well as their fee structure and many of them have questionable investment practices. Giving them a free run of our market mocks domestic investors who have to adhere to strict disclosure norms and KYC rules. It is especially unfair since Indian investors are still not allowed to invest abroad, except in a limited way through mutual funds.