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A Game Changer's Memoir – an Excerpt

Highly admired for his outstanding credentials as the Life Insurance Corporation of India (LIC) Chairman, G.N. Bajpai was hastily appointed as the Chairman of the Securities and Exchange Board of India (SEBI) during one of its most turbulent times between 2002 and 2005. A focused regulator, he revamped the entire organization and introduced reforms and measures of global standards causing the security markets to make major leaps which had so far been inconceivable. He played a substantial role in helping India emerge as a highly competitive, immensely lucrative and influential capital market.
A masterful strategist, Bajpai, in his book, A Game Changer’s Memoir recounts his truly inspiring journey as he weaved through complex rules and frameworks in his efforts to turn SEBI into an effective financial regulator for the country.
Here is an excerpt!


“The first two years of my tenure were spent focusing on bringing in reforms like T+2, STP, fast-tracking quasi-judicial proceedings, and letting the hurricane of Scam 2001 calm down. It is only in the latter part of my tenure that I started making the rounds of investor forums across the world. I went to Singapore,
Hong Kong, New York, London and other international financial centres to market the India growth story to FIIs. After all, theIndian capital market was competitively efficacious and was growing by leaps and bounds. It provided ample opportunities to investors to profit from the continuing economic reforms in the country. And I was also aware that our presence at the global forums was low-key compared with that of other countries. I wanted to send out a message saying how strong we were.
In 2004 the UPA came to power and P. Chidambaram became the finance minister, and therefore also a member (as India’s representative) on the Board of Governors of World Bank (WB), Asian Development Bank (ADB), IMF, and the like. He made it a point to be there at all global forums, like the WB, ADB and IMF meetings. He raised the level of India’s participation in investor forums by attending them himself, and SEBI became an inseparable part thereof. Consequently, my presence too increased at various global investor forums. As we will see, this turned out to be quite helpful, and the practice is continued even now.
The Taxation Issue Faced by FIIs
For the first global investor meet, an informal forum with fund managers in New York, the FM asked me to join him too. … I decided to join the New York and London forums and travelled there just for a day each. These forums were attended by many investors, FIIs and some big broking houses like Merrill Lynch and Morgan Stanley. After the formal talks, there were one-to-one meetings, where two groups of fund managers focused on the subject of taxation. One issue regarded the capital gains tax that FIIs were required to pay on their share purchases and sales in the Indian stock markets. They did not have an issue with the tax per se, but they had complaints about its timing. Capital gains are taxed, as the name suggests, when a gain is made, and gain is known when a transaction is complete. The completion of a transaction may happen after a gap of many years, and the exact tax liability remains unknown till well after completion of the transaction and assessment of liability by the assessing officer.
This is owing to the fact that there is generally a gap between filing the income tax return and the assessment. In a typical transaction, the FIIs buying/selling shares in Indian markets through Indian brokers complete their usual Indian tax return formalities for the year at the end of the year, pay their self-assessed liability (on a tax consultant’s advice) and go on about their normal business. (It is to be noted that no tax was required to be paid at the time of transaction). After a few years, when assessment is made, capital gains tax liability (in most cases additional) springs up on these FIIs. This put FIIs in a bit of a jeopardy. FIIs are institutions executing securities transactions on behalf of customers or investors who are the persons liable to pay tax. But most of the time, these customers having cashed out and gone, it becomes well-nigh impossible for FIIs to recover, after several years, the tax levied on them by the Indian Tax Authorities from their end investors. Since the investors represented by these FIIs have closed their transactions with the FIIs, made their profits and moved out, there was no way that FIIs could deduct the tax liabilities from their payments to these investors. This was because the actual (not estimated) liability was not determined before the end customers closed their transactions with the FIIs. And even if these FIIs went back to those investors to recover the tax, the investors would not oblige them, leaving the FIIs to bear the tax burden.
The suggestion towards a solution was to levy something upfront, at the time of the transaction. The FIIs would then deduct the tax liability from their investors and then pay the Indian tax authorities. We heard them out and came back to India, determined to solve the problem. Later, I also got to know that there was a number of pending legal cases in India which were pertaining to such tax issues between FIIs and the investors they represented. Until I started attending these forums myself, I never got to know about these taxation issues. What the FII representatives told me was a common complaint at many such global investor forums. Even domestic institutional investors (DII) in India had the same complaint. Now, since the FM himself was present at most of these forums, he too understood the problem and started exploring ways to tackle it…”


Easy-flowing and readable with the writer’s anecdotal and educative style of writing and yet greatly comprehensive, this is a go-to book for a new generation of aspiring financial groundbreakers.

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