In News: The government notified new norms for overseas investments by Indians.
The Overseas Investment Rules and Regulations, notified under the Foreign Exchange Management Act (FEMA), will be administered by the Reserve Bank of India (RBI), and shall subsume all existing norms pertaining to overseas investments as well as acquisition and transfer of immovable property outside India.
New norms are aimed at making it easier for domestic corporates to invest abroad, while making it tougher for loan defaulters and others being probed by investigative agencies and regulators to shift funds out of the country.
No Indian resident shall be allowed to make investments into foreign entities that are engaged in real estate activity, gambling in any form, and dealing with financial products linked to the Indian rupee without the central bank’s specific approval.
To make it difficult for bank defaulters and fraudsters to acquire assets abroad, often as a precursor to leaving the country, the new rules mandate they secure a No Objection Certificate (NOC) from their lender, or concerned regulators and investigative agencies before making any ‘financial commitment’.
This NOC shall be mandatory for any person who has a bank account classified as a non-performing asset, or is labelled a wilful defaulter by any bank, or is under the investigation by a financial service regulator, the Enforcement Directorate (ED) or the Central Board of Investigation (CBI).
The rules, framed in consultation with the central bank, provide that if lender banks or the concerned regulatory body or investigative agency fail to furnish the NOC within 60 days of receiving an application, it may be presumed that they have no objection to the proposed transaction.
Any resident in India acquiring equity capital in a foreign entity or overseas direct investment (ODI), will have to submit an Annual Performance Report (APR) for each foreign entity, every year by December 31.
No such reporting shall be required where a person resident in India is holding less than 10% of the equity capital without control in the foreign entity and there is no other financial commitment other than equity capital or a foreign entity is under liquidation.
Any resident individual can make ODI by way of investment in equity capital or overseas portfolio investment (OPI) subject to the overall ceiling under the LiberalisedRemittance Scheme (LRS) of the Reserve Bank. Currently, the LRS permits $2,50,000 outward investment by an individual in a year.
An Indian entity can make OPI not exceeding 50% of its net worth as on the date of its last audited balance sheet.
In view of the evolving needs of businesses in India, in an increasingly integrated global market, there is a need of Indian corporates to be part of the global value chain.
The revised regulatory framework for overseas investment provides for simplification of the existing framework for overseas investment and has been aligned with the current business and economic dynamics.
