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Consolidated FDI policy seeks to bring more clarity on regulations

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29 August 2017

The consolidated FDI policy document released by the government on Monday seeks to bring more clarity on sectoral and overall regulations on foreign investments in various sectors of the economy.

While proposals relating to banking, mining, defence, broadcasting, civil aviation, telecoms, pharmaceuticals etc will have to be approved by administrative ministries, the DIPP will be the authority to clear proposals relating to areas, including retail (single and multi-brand, and food).

For investments in financial services activities that are not regulated by any financial sector regulator or where only part of the financial services activity is regulated or where there is doubt regarding the regulatory oversight, the department of economic affairs will clear the proposals.

The policy simplifies the definition of 'venture capital fund' in the FDI policy of as a fund registered under the Sebi (Venture Capital Funds) Regulations, 1996and FDI-linked performance conditions as sector-specific conditions for companies receiving foreign investment.

A non-resident entity can invest in India, subject to the FDI Policy except in those sectors/activities which are prohibited. However, a citizen of Bangladesh or an entity incorporated in Bangladesh can invest only under the government route.

Further, a citizen of Pakistan or an entity incorporated in Pakistan can invest, only under the government route, in sectors/activities other than defence, space, atomic energy and sectors/activities prohibited for foreign investment.

NRIs resident in Nepal and Bhutan as well as citizens of Nepal and Bhutan are permitted to invest in the capital of Indian companies on repatriation basis, subject to the condition that the amount of consideration for such investment shall be paid only by way of inward remittance in free foreign exchange through normal banking channels.

While overseas corporate bodies (OCBs) have been derecognised as a class of investors in India with effect from 16 September 2003, the FDI policy allows erstwhile OCBs which are incorporated outside India and are not under the adverse notice of RBI to make fresh investments as incorporated non-resident entities. But they should take prior approval of the government of India if the investment is through government route and prior approval of RBI if the investment is through automatic route.

A company, trust and partnership firm incorporated outside India and owned and controlled by NRIs can invest in India with the special dispensation as available to NRIs under the FDI Policy.

Foreign institutional investor (FII) and foreign portfolio investors (FPI) may in terms of the provisions of FEMA (Transfer or Issue of Security by Persons Resident Outside India) Regulations, as the case may be, respectively, invest in the capital of an Indian company under the Portfolio Investment Scheme, which limits the individual holding of an FII/FPI below 10 per cent of the capital of the company and the aggregate limit for FII/FPI investment to 24 per cent of the capital of the company. This aggregate limit of 24 per cent can be increased to the sectoral cap/statutory ceiling, as applicable, by the Indian company concerned through a resolution by its board of directors followed by a special resolution to that effect by its general body and subject to prior intimation to RBI. The aggregate FII/FPI investment, individually or in conjunction with other kinds of foreign investment, will not exceed sectoral/statutory cap.

An Indian company which has issued shares to FIIs/FPIs under the FDI policy for which the payment has been received directly into company's account should report these figures separately under item No 5 of Form FC-GPR (Annexure-1).

A daily statement in respect of all transactions (except derivative trade) has to be submitted by the custodian bank in soft copy in the prescribed format directly to RBI and also uploaded directly on the OFRS website (https://secweb.rbi.org.in/ORFSMainWeb/Login.jsp).

Only Sebi-registered FIIs/FPIs and NRIs as per the Foreign Exchange Management (Transfer or Issue of Security by a Person Resident Outside India) Regulations, 2000, can invest or trade through a registered broker in the capital of Indian companies on recognised Indian stock exchanges.





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