Before understanding the entire application of P.Ns in a very simple language, we should be informed that India is the only country in the world which has allowed P.Ns. Reason is simple…. “Institutionalisation of Corruption”. But this is how P.Ns which are otherwise meant for encouraging FIIs are exploited:
1) A takes out his black money from India to tax havens, through Hawala network. Hawala is Dubai Headquartered and the agents can’t operate without saluting ISI of the Pakistan. So, when A is a minister, the ISI blackmails him, as it knows all the transaction details of A. This also explains the inaction of Indian Government post 26/11, on beheading of Indian soldiers, on Hafiz Saeed, giving 2G licenses to the ISI controlled companies, on incessant bomb blasts known to be have planned and executed by Pakistan. The Home minister says that we ave 54 terrorist training camps operating in POK targeting India and does nothing. Even the dossier sent by GOI to Pakistan in relation to 26/11, was inadequate as far as standards of jurisprudence are concerned. Therefore the Pakistani courts refused to take any action against Hafiz Saeed.
2) The money so received through Hawala, filled obviously in huge sacks, is taken to a financial institution like US Fidelity, Morgan Stanley etc and they give the depositor a simple cheque sized note called participatory note.
3) This note contains only one entry – “The Amount Deposited”. You don’t need to tell your name, address anything. This makes it a secret, clandestine document.
4) A then flies back to India with this paper. He goes to RBI, shows this note and the RBI issues him a receipt of the same amount. This receipt is investable in Stock Exchange.
5) A then invests his hundreds of crores in the stock exchange. The stock exchange suddenly rises because of this purchasing and the investor earns huge capital gains. He then sells his shares, gives back to RBI, and now the RBI is obliged to pay him back in dollars along with the profit he makes. When he takes his money out of the stock exchange, the stock market plunges and the middle class Indian investors, lose their money. This explains the huge fluctuations in the Indian stock market. It rises, falls and continues like that. You might have seen this in the news very often…
6) If a common Indian citizen has to invest his hard earned money in the stock exchange, he will be grilled by the SEBI on its sources and other details. For those with P.Ns, SEBI has no regulation on them. They are VIPs.
7) If a common Indian citizen earns capital gains by investing in stock exchange, he is charged with 33% tax on that net profit. But those with P.Ns, are routed through Mauritius with which we have signed DTAA, and hence, they are not required to pay any taxes to the Indian authorities. What a betrayal!!!!
8) The then SEBI chairman, and the Tarapore Committee on capital account convertibility had opposed the introduction of P.Ns tooth and nail. But Chidambaram bulldozed his way with the backing of Sonia Gandhi.