The government of India recently announced a notable change in their overseas investment rules that will enhance the Ease of Doing Business’ sentiment and attract important FDI and interest from abroad. It is a welcome move from the RBI and will surely make NRIs more at ease with investing in their homeland. The movement has updated the existing structure for NRI investment by making it more current and up-to-date with modern business dynamics. The most celebrated step was that the government reduced unnecessary processes and procedures, and introduced much-needed clarity on NRI, overseas direct investment, and portfolio investment.
Here are some essential facts about the recent introduction of overseas investment rules!
Rationale
Overseas investments are essential drivers of the Indian economy. They not only help in the rapid development of Indian infrastructure but also help expand the scope of business operations in India. Investments such as these have massively helped put India on an international stage and provided global opportunities for growth and development. This new overseas investment venture has been implemented after much time spent on strengthening access to technology, robust research and development, and exposure to a broader global market while operating on a reduced cost of capital. This has hugely increased the competence of Indian entrepreneurs and businesses that have helped restructure their brand image. Foreign investments of this nature aid in improving these systems while also being catalysts for foreign trade and boosting domestic employment and growth.
The finance ministry of India made the following statement to explain its position- “In view of evolving needs of businesses in India, in an increasingly integrated global market, there is a need for Indian corporates to be part of the global value chain. The revised regulatory framework for overseas investment simplifies the existing framework for overseas investment and has been aligned with the current business and economic dynamics.” (sic)
Changes Proposed
There have been some significant changes, as well as the addition of new rules and guidelines for this measure. The government has allowed for some necessary and much-needed clarity concerning some legal definitions that have been ambiguous and confusing for NRI investors. Secondly, they have also introduced the concept of a ‘strategic sector’.
Thirdly, to reduce procedures and administrative lag, the government has waved off approval for the following, according to the RBI–
- Deferred payment of consideration
- Investment/disinvestment by a person resident in India under investigation by any investigative agency/regulatory body;
- Issuance of corporate guarantees to or on behalf of second or subsequent level step-down subsidiary (SDS);-
- Write-off on account of disinvestment
How Does This Affect Indians and NRIs?
In more ways than one! Multiple changes need to be mentioned for ease of understanding of this move. Here are some key highlights.
- The official ban on receiving gifts of foreign securities from NRIs has been lifted and now is permissible subject to the Foreign Regulation Act of 2010.
- Now, a person who is a resident in India can invest in an IFSC as an Overseas Portfolio Investment or OPI. They might also make an ODI in a foreign entity engaged in financial services, except for banking and insurance.
- There will now be a valid stock exchange where IFSC will be treated as a legitimate stock exchange outside the country for these new rules.
- Indian entities can consider ODIs by investing in equity for setting up bonafide business activity, provided it strictly follows the guidelines provided by the gazette issued by the RBI.
