Corporates can invest abroad beyond the prescribed limits: Govt

Foreign portfolio investment was not clearly defined in earlier regulations.

New Delhi:

The government said on Tuesday that Indian corporate entities will be able to make foreign investments beyond the prescribed limits in strategic sectors such as energy and natural resources with necessary permits.

Issuing an explanatory note on Foreign Direct Investment Rules and Regulations 2022, the Ministry of Finance said that non-financial sector entities can make direct investments in foreign entities engaged in financial services activities (except banking and insurance) under the automatic route.

Earlier provisions did not allow foreign direct investment by Indian entities in the non-financial sector in foreign firms engaged in financial services activities.

“An Indian entity not engaged in the insurance sector may make foreign direct investment in general and health insurance where such insurance business is supporting the core activities of such Indian entity abroad,” it said.

The government issued a notification in two gazettes on Monday, delimiting foreign direct investment and foreign portfolio investment.

Foreign portfolio investment was not clearly defined in earlier regulations.

Other terms such as control, divestment, step down subsidiary and financial services activity are also defined.

The note further said that under the new regime, a new concept of strategic sector has been introduced where the government will have the right to allow foreign investment beyond the limits specified in the Foreign Investment Rules.

“Strategic sectors will include energy, natural resources and other sectors as decided by the government from time to time keeping in view the evolving business needs,” the statement said.

The new arrangement proposes that items from sanctioned routes will now be allowed under the automatic route.

Under the earlier regime, approval of the Reserve Bank was required to issue corporate guarantees on behalf of the second or last tier step-down subsidiary (SDS) of an Indian entity, it said, adding that the new regime brings it under automatic route.

Any disinvestment involving write-offs beyond the prescribed limits requires prior approval from the Reserve Bank. The new arrangement brings such transactions under an automatic route subject to the provisions contained in the Foreign Investment Rules and Regulations, the finance ministry said.

Under the new regime, a foreign entity has been allowed to acquire equity capital on deferred payment basis under the automatic route which was earlier under the approval route.

An Indian entity not engaged in financial services activities in India may make a direct investment (ODI) other than banking or insurance directly or indirectly in a foreign entity engaged in financial services activities directly or indirectly in an International Financial Services Center (IFSC). However, it does not fulfill the condition of net profit as per these rules, it noted.

In terms of compliance burden, it said, the new regime has also introduced late submission charges for filing various foreign investment-related returns/documents on the same lines as for transactions related to foreign investment and external commercial borrowing.

This will significantly facilitate compliance requirements, the ministry said.

Separate reporting requirements for establishment/bind-up of step-down subsidiaries or change in shareholding pattern of a foreign entity are now abolished, it added.

“Given the evolving needs of businesses in India, in an increasingly integrated global market, Indian corporates need to be part of the global value chain.

“The revised regulatory framework for foreign investment provides for simplification of the existing framework for foreign investment and is aligned with the current trade and economic dynamics,” the finance ministry said in a statement on Monday.

Clarity has been brought in on foreign direct investment and foreign portfolio investment and various foreign investment related transactions which were earlier under approval route are now under automatic route, significantly enhancing the ‘ease of doing business’.

(Other than the headline, this story has not been edited by NDTV staff and is published from a syndicated feed.)

Leave a Comment

Your email address will not be published.