Center issues new foreign investment rules to promote ease of doing business
New Delhi:
To promote ease of doing business, the Finance Ministry on Monday notified consolidated rules for foreign investment by Indian entities.
The Foreign Exchange Management (Foreign Investment) Rules, 2022 will incorporate the existing rules relating to foreign investment and acquisition and transfer of immovable property outside India.
“Given the growing needs of businesses in India, an increasingly integrated global market, there is a need for Indian corporates to be a part of the global value chain.
The revised regulatory framework for foreign investment provides for simplification of the existing framework for foreign investment and has been linked with the existing business and economic dynamics,” the finance ministry said in a statement.
Clarity has been brought on Foreign Direct Investment and Foreign Portfolio Investment and various foreign investment related transactions which were earlier under the approval route are now under the automatic route, thereby significantly increasing the ‘ease of doing business’.
Last year, the Government of India, in consultation with the Reserve Bank, conducted an extensive exercise to simplify these rules.
The draft Foreign Exchange Management (Foreign Investment) Rules and the Draft Foreign Exchange Management (Foreign Investment) Regulations were also placed in the public domain for consultation, it said.
The new rules cover foreign investment in International Financial Services Center (IFSC) by a person resident in India.
A gazette notification issued by the Ministry of Finance states that a person resident in India can make foreign investment in IFSC in India within the limits.
A person resident in India can contribute to an investment fund or vehicle set up in IFSC in the form of Foreign Portfolio Investment (OPI).
It further states that a resident individual can make foreign direct investment (ODI) in a foreign entity, including an entity engaged in financial services activity (excluding banking and insurance) included in the IFSC, if such entity is not a subsidiary or has left out subsidiary company outside IFSC where the resident individual has control over the foreign entity.
The notification states that an authorized dealer bank including its overseas branch may, in the ordinary course of its banking business, acquire or transfer foreign securities in accordance with the conditions of the host country or host jurisdiction, as the case may be.
Any resident individual can do ODI by way of investment in equity capital or OPI, subject to the overall limit under the Liberalized Remittance Scheme of the Reserve Bank.
Currently, LRS allows external investment of USD 2,50,000 by an individual in a year.
In respect of corporates, the notification said, an Indian entity cannot generate OPI in excess of 50 per cent of its net worth as on the date of its last audited balance sheet.
Corporates may undertake ODIs by way of investment in equity capital for the purpose of carrying out actual business activity, stating that, the aggregate financial commitment made by an Indian entity across all foreign entities together at the time of such commitment shall not be in the final audited comparison. More than 400 per cent of his net worth as on the date of the letter or as directed by the Reserve Bank.