The
policy for Indian direct investment abroad has been substantially liberalized
from time to time. RBI vide their
A.P.(DIR Series) Circular No.66 dated 13.01.2003 (in partial modification of
Notification No. FEMA 19/2000-RB dated
3rd May 2000
) has liberalized the policy under automatic route :
(i)
Corporates - Listed
Indian companies are permitted to invest abroad in companies, (a) listed on a
recognized stock exchange and (b) which has the shareholding of at least 10% in
an Indian company listed on a recognized stock exchange in India (as on 1st
January of the year of the investment). Such investments shall not exceed 25%
( modified 35% as per RBI’s Master
Circular dated
2nd July 2007
) as of the Indian company’s net worth, as on the date of latest audited
balance sheet.
(ii)
Individuals - Reserve Bank of
India, under the “Liberalized Remittance Scheme for Resident Individuals”
permits resident individual to remit up to US $ 100,000 per financial year for
any permitted current or capital account transactions or a combination of both,
such as bank deposits, purchase of immovable property, investment in equity and
debt abroad. Similarly, resident individuals are permitted to remit for current
account transactions such as gift, donation, medical treatment, education,
employment, emigration, import of medicines, books and periodicals subject to
foreign trade policy. [Master Circular issued by RBI dated
2nd July 2007
]
(iii)
Indian corporates / Registered partnership firms are allowed to undertake
agricultural activities either directly or through an overseas branch.
(iv)
The stipulation of minimum net worth of Rs.15 crores for Indian companies
engaged in financial sector activities in
India
removed for investment abroad in the financial sector. However, an Indian party seeking to make investment in an entity engaged
in the financial sector should also fulfill the following additional conditions:
(a)
be registered with the
appropriate regulatory authority in
India
for conduction the financial sector activity;
(b)
have earned net profit
during the preceding three financial years from the financial service
activities;
(c)
have obtained approval for
investment in financial sector activities abroad from regulatory authorities
concerned in
India
and abroad; and
(d)
have fulfilled the prudential norms relating to capital adequacy
as prescribed by the regulatory authority concerned in
India
.
In
the year 2005-06, RBI vide their AP Circular No.29 dated 27.3.2006, liberalised
the policy under
Automatic Route
as under:
(1)
Guarantees -
The scope of guarantee has been enlarged under the
Automatic Route
. Indian entities may offer any forms of guarantee – corporate or personal/
primary or collateral/ guarantee by the promoter company/ guarantee by group
company, sister concern or associate company in
India
, provided that:
(a)
All “financial commitments” including all forms of guarantees are
within the overall prescribed ceiling for overseas investment of the Indian
party i.e currently within 200% (modified 300%
as per Master Circular issued by RBI dated 2nd July 2007] of
the net worth of the investing company;
(b) No guarantee is ‘open ended’
i.e the amount of the guarantee should be specified upfront, and
(c)
As in the case of corporate guarantees, all guarantees are required to be
reported to RBI, in Form ODR.
(2)
Disinvestment -
In order to enable companies to have operational flexibility according to
their commercial judgment, the Automatic route of disinvestment has been further
liberalized. Indian companies are permitted to disinvest without prior approval
of the RBI in the following categories:
a)
in cases where the JV/WOS is listed in the overseas stock exchange.
b)
in cases where the Indian promoter company is listed on a stock exchange in
India
and has a net worth of less than Rs. 100 crore.
c)
where the Indian promoter is an unlisted company and the investment in overseas
venture does not exceed US$ 10 million.
(3)
Proprietorship concerns –
With a view to enabling recognized star exporters with a proven track record and
a consistently high export performance to reap the benefits of globalization and
liberalization, proprietary/ unregistered partnership firms are allowed to set
up a JV/WOS outside
India
with prior approval of RBI.
