Advent of Indian Depository Receipts

Abstract

Indian financial markets have come a long way since the adoption of New Industrial Policy framework by Indian government in 1991. There is an increasing trend towards the internationalisation of Indian financial markets, driven mainly by the Indian government’s willingness to adopt liberalized and outward looking policy initiatives with regard to its financial markets. The Indian government has taken several policy initiatives to: (a) gradually open up its financial markets to the foreign investors; and (b) allow its own citizens to invest in the foreign financial markets. These initiatives include permitting: (a) Indian firms to issue their Depositary Receipts (DRs) in the International markets in April 1992; (b) Indian mutual funds to invest in debt securities of select countries as well as launch overseas debt funds in February 2002; (c) Indian investors to buy shares of foreign companies that had a listed Indian subsidiary in April 2003; (d) the resident Indians to remit $ 25,000 a year for investing in the foreign assets of their choice in January 2004. Latest policy initiative in this regard has come in form of ‘Companies (Issue of Indian Depository Receipts) Rules, 2004’, which were issued by the Department of Company Affairs (DCA) on 23rd Feb 2004. These rules permit the eligible foreign firms to raise funds from the Indian capital market by listing the Indian Depository Receipts (IDRs) on the Indian stock exchanges. This article discusses the concept of IDR and provides a critical review of the rules framed by the DCA for issuing IDRs. A discussion about the possible benefits of IDRs to the overseas issuing companies and the Indian investors is also included in this article.

Keywords: Indian Depositary Receipts, Foreign Listing, India, Policy Initiatives