Critically evaluate SEBI's granular disclosure framework for FPIs. How should regulators balance market transparency with the need to attract foreign capital?

SEBI's circular of 24 August 2023 covers foreign portfolio investors (FPIs) that meet high-risk criteria. These FPIs must disclose every natural person who has ownership, economic interest or control in them, with no minimum threshold [1]. The framework was a needed correction. However, it has been diluted step by step, which shows the pull between transparency and capital inflows.

Strengths

• Targeted triggers: it applies only to FPIs holding >50% of Indian equity AUM in one corporate group or crossing a size threshold. Most funds are therefore untouched [1].
• Protects market integrity: the concentration test is meant to stop funds getting around Minimum Public Shareholding and takeover (SAST) norms [2].
• Credible enforcement: FPIs that do not comply must sell their holdings and exit the Indian market [1].
• Proportionate: government-related investors and broad-based regulated pooled funds are exempt [1].

Weaknesses

• Steady dilution: the size threshold was doubled from ₹25,000 crore to ₹50,000 crore [3]. SEBI cited higher market turnover and industry feedback [2].
• Visible only to the regulator: the data goes to SEBI, not the public. In October 2026 the Supreme Court refused to order public disclosure because no legal framework for it exists. It left the matter to the Centre and SEBI [5].
• Fragile rule base: the 2019 removal of the "opaque structure" provisions was challenged in the Adani–Hindenburg case [4]. Rules made through circulars can be loosened quietly.
• Compliance cost: tracing ownership through layered global funds is costly and may deter some investors.

Balancing transparency and foreign capital

• Risk-based calibration: adjust who is covered (thresholds), but never how deep the tracing goes. The look-through to natural persons should stay.
• Tiered access: under the IMF model, the public sees name and country, while authorities see everything [7]. This fits FATF Recommendation 24, which requires access for authorities and leaves public access optional [6].
• Consult before easing: use open consultation papers, as SEBI did for the 2025 threshold change [2].
• Firmer legal footing: move the core duty from circulars into regulations. That is the "legal framework" the Court found missing [5].

Overall, the framework is well designed, but it has not held up well over time. A risk-based, tiered regime set out in regulations can protect market integrity while keeping India attractive to investors. That serves the SEBI Act's twin mandate: investor protection and market development.