Indians to Trade in Select US Stocks
GS Paper – 3 Industrial Policy, Industrial Growth
Why is it in the news?
- Investors in India have recently been granted the ability to trade in certain US equities through the National Stock Exchange of India (NSE International Exchange).
- Currently, Indian investors purchase equities in the United States through approved internet brokers who have been granted licence to do so by both Indian and US regulators.
What Does This Mean?
- This implies that local investors will be able to acquire US equities such as Amazon, Alphabet, Tesla, and others.
- Generally speaking, stock (also known as equity) is a financial instrument that reflects ownership of a portion of a firm.
- The offering, on the other hand, will be made in the form of unsponsored depository receipts (unsponsored depository receipts).
- For example, one share of Tesla will be equal to 100 NSE IFSC receipts when converted to dollars.
- Already, the strategy has received permission from the International Financial Services Authority (IFSCA).
What exactly is the Exchange?
- The NSE IFSC (National Stock Exchange of India International Exchange), which was established on November 29, 2016, is a wholly owned subsidiary of the National Stock Exchange of India Limited (NSE).
- GIFT-based stock exchanges are able to provide trading in securities in any currency other than the Indian rupee, allowing them to compete with major international stock exchanges.
- The NSE IFSC, which began trading on June 5th, 2017, offers a variety of goods in which you may trade in US dollars (US dollars).
- Among the items traded on the NSE’s International Financial Services Center are index derivatives, stock derivatives, currency derivatives, commodity derivatives, and debt securities.
What is an NSE IFSC Receipt and how does it work?
- In the nature of an unsponsored “depository receipt,” it is a negotiable financial instrument. As a result, it is a derivative product, and investors may trade in the stocks directly without having to go through a registered online broker.
- Shares can be acquired in the United States and receipts issued in exchange for them, which will be referred to as NSE IFSC Receipts, in the same way as they can be purchased domestically.
What is the benefit of this?
- The business model proposed by the NSE IFSC would not only provide an extra investment option to Indian investors, but it will also make the whole investment process simple and low-cost, which will benefit all parties involved.
- When compared to the underlying shares traded on US stock exchanges, investors will be able to trade in fractional quantities of the underlying shares.
- Investors will be able to hold the depository receipts in their own GIFT City demat accounts, and they will be entitled for corporate action advantages on the underlying stock as a result of this arrangement.
- A Demat Account, also known as a Dematerialised Account, is a financial account that allows you to retain shares and assets in an electronic version.
- Companies provide advantages to their shareholders in the form of dividends and stock options. These may be monetary advantages such as dividends or interest, or they may be non-monetary benefits such as bonuses, rights, or other privileges.
Who has the ability to invest?
- Persons residing outside India, non-resident Indians, and individuals residing in India who are eligible under the Foreign Exchange Management Act (FEMA) to invest funds offshore, to the extent permitted by the Reserve Bank of India’s Liberalized Remittance Scheme, are all eligible to participate in the scheme.
- The primary goal of the Foreign Exchange Management Act (FEMA) in India was to ease international commerce and payments.
- The RBI grants resident people the ability to remit up to USD2,50,000 every financial year for any approved current or capital account transaction under the LRS framework.
- Residents of the United States and Canada, on the other hand, are not permitted to invest using this vehicle.
What are some of the risks that an investor can face?
- Investing in NSE IFSC Receipts is fraught with danger.
- The following are some of the most serious risks:
- Price and volatility risks are general risks.
- The risks of illiquidity, the risk of the underlying share, the risk of cancellation and termination of the NSE IFSC Receipt, and
- The risk of the underlying share is all present.
- Tax ramifications,
- Other risks include things like force majeure, changes in the legislation, settlement, trade, and so forth.
Reviving the inland water transport system for the Northeast
GS Paper – 3 Infrastructure Growth & Development, Government Policies & Interventions.
The story so far:
- The MV Lal Bahadur Shastri, which had sailed up the Ganga from Patna a month before, landed in Guwahati’s Pandu port on the southern bank of the Brahmaputra on March 6, carrying 200 metric tonnes of food grains for the Food Corporation of India (FCI).
- It is thought that the event propelled inland water transport on two of India’s most important river systems into the future.
Why is a Ganga-Brahmaputra cargo vessel in focus?
- When a cargo vessel sets sail from or docks at any river port, it is not unusual for people to take notice. However, a large number of VIPs gathered to greet the MV Lal Bahadur Shastri, a cargo vessel operated by the IWAI (Inland Waterways Authority of India), as it docked at Guwahati’s Pandu port on March 6. Sarbananda Sonowal, Union Minister for Ports, Shipping, and Waterways, Assam Chief Minister Himanta Biswa Sarma, Guwahati MP Queen Oja, and IWAI Chairman Sanjay Bandopadhyay were among those who attended the ceremony.
- The vessel had begun sailing from Patna on the National Waterway 1 on February 5th (NW1, river Ganga). In India, it passed through Bhagalpur, Manihari, Sahibganj, Farakka, Tribeni, Kolkata, Haldia, Hemnagar, and Chilmari, while in Bangladesh, it passed through Khulna, Narayanganj, Sirajganj, and Chilmari before returning to India via National Waterway 2 (NW2, river Brahmaputra) via Dhubri and Jogighopa, a distance of 2,350 In India’s landlocked northeast, which was highly reliant on India’s inland water transport system before independence in 1947, the arrival of a vessel carrying 200 MT of food grains for the FCI has renewed optimism for the inland water transport system.
Is this the first such shipping of cargo?
- The shipment of freight from Patna to Pandu via Bangladesh was the first enterprise undertaken by FCI. Two 1,000-tonne barges carrying 1,233 tonnes of bagged fly ash travelled 2,085 kilometres (more than a month) from Kahalgaon in Bihar to Pandu in Uttar Pradesh in a similar experiment in 2018.
- A private company had purchased fly ash from the National Thermal Power Corporation’s facility in Bihar for use in its cement mills in Assam and Meghalaya, which were located in those states. According to expectations, regular services between NW1 and NW2 will be established, “heralding a new age of inland water transport” for the northeast. A 252 MT shipment bound for eastern Assam’s Numaligarh biorefinery arrived at Silghat in central Assam on February 15 after travelling from Haldia in West Bengal.
- According to the Indian Wind Energy Association, the process has already begun. Another vessel, the MV Ram Prasad Bismil, which is transporting two barges named Kalpana Chawla and APJ Abdul Kalam, began its trip from Haldia on February 17 and is anticipated to arrive in Pandu within a few days.
How would regular inland water service impact the northeast?
- Around the time of independence, Assam had the highest per capita income in the country, owing to the state’s tea, lumber, coal, and oil industries’ proximity to seaports on the Bay of Bengal through the Brahmaputra and Barak River systems (in southern Assam).
- Ferry services continued intermittently after 1947, but were discontinued during the 1965 war with Pakistan, because Bangladesh was formerly known as East Pakistan.
- As a result of the closure of the river channels, transportation by rail and road across the “Chicken’s Neck,” a short strip of West Bengal, became more expensive options.
- “The commencement of cargo transportation through the Indo-Bangladesh Protocol (IBP) route will present the corporate community with a viable, cost-effective, and environmentally friendly alternative.” A seamless cargo transportation system has been deemed essential for the northeast,” Mr Sonowal explained. “
India has invested 80% of ₹305.84 crore to improve the navigability of the two stretches of the IBP (Indo-Bangladesh Protocol) routes.
- Attributed the resurgence of historical trade routes through Bangladesh to the Prime Minister’s Gati Shakti initiative, which aims to gradually transform the northeast into a connectivity hub while increasing the speed with which cargo can be transported on the Brahmaputra, which meets the Ganga in Bangladesh. In that nation, these rivers are referred to as the Jamuna and the Padma.
What led to the establishment of the water cargo service via Bangladesh?
- Since the signing of the Protocol on Inland Water Transit and Trade between the two nations, the return of freight transport services over Bangladesh’s waterways has come at a high cost. India has committed a total of 305.84 crore, or 80 percent of the total, to improving the navigability of two lengths of the IBP (Indo-Bangladesh Protocol) routes in Bangladesh — Sirajganj-Daikhowa and Ashuganj-Zakiganj, respectively.
- In addition, the seven-year dredging project on these two segments, which is projected to be completed by 2026, is likely to result in continuous transportation to the north-eastern area.
- IWAI authorities have said that once the IBP routes are opened for navigation, the distance between NW1 and NW2 will be reduced by over 1,000 kilometres. The government has also invested Rs. 4,600 crore on the Jal Marg Vikas project, which would increase the capacity of the National Waterway No. 1 to allow for the sustainable transit of boats weighing up to 2,000 tonnes.
- However, there are a few difficulties that need to be addressed. It has been difficult for the sailors who made the cargo journeys feasible to avoid being caught in fishing nets or being attacked by furious fisherman in Bangladesh. Officials believe that these difficulties will be resolved in due course.
What kind of comprehensive strategy is required?
- Private Partnership – The government should prioritise the development of navigation infrastructure, channel operation and maintenance, and external connectivity infrastructure, rather than other priorities.
- Individuals and companies can participate in terminal development, cargo and passenger handling, and the construction of low-draft boats and associated maintenance facilities.
- Industrial Incentives – The government can require or provide incentives to businesses located near national waterways to ship a percentage of their goods through this option.
- It is possible to mandate public sector enterprises such as the Food Corporation of India, power plants, and refineries in a similar way.
- Sustainable transportation model – To maximise synergy, the government can encourage industrial corridors along riverbanks and encourage industrialization based on rivers and canals.
- Besides ensuring captive IWT cargo, this would also help to prevent riverbank erosion because companies will be more inclined to safeguard the land that has been granted to them.
- Promoting tourism – In addition to passenger terminal construction, the government must provide financial assistance to ferry operators in order to increase safety and make insurance coverage more accessible to passengers.
- As part of their joint efforts to package and sell river tourism in a large way, the Centre and the States must work together to create a virtuous cycle.
