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FDI Norms for NRIs Relaxed – Foreign Investments Anticipated


FDI Norms for NRIs Relaxed

Change in NRI Investment Policy

Last week, on Thursday, 21 May 2015, the government of India, in what has been termed a major economic decision, agreed to liberalise the country’s Foreign Direct Investment (FDI) norms. These norms relate to investments from non-Resident Indians (NRIs), persons of Indian origin (PIOs), and overseas citizens of India (OCIs). “The Cabinet approved amendments to FDI policy on investments by NRIs, PIOs, and OCIs. This will give PIOs and OCIs parity with NRIs in economy and education,” said an official spokesperson referring to the decision taken by the Cabinet Committee on Economic Affairs which is chaired by the Prime Minister, Narendra Modi.

The proposal to amend these NRI investment norms originated from the Department of Industrial Policy and Promotion (DIPP) as a result of an increased need for capital inflow from abroad. The committee, which was constituted last year, has arrived on the decision after many months of deliberation.

NRIs, PIOs, and OCIs

Apart from the global Chinese community, India has the largest diaspora in the world. The Indian community spread across different countries of the world is estimated to be over 25 million strong. A non-resident Indian is an Indian citizen who is residing temporarily in a foreign country for over six months for employment, education, and other purposes. A person of Indian origin is a person, who may have given up his/her Indian citizenship to take on another country’s citizenship, or is a descendent of Indian citizen(s), or was born in India but does not hold Indian citizenship. The definition of NRI has now been changed to include PIOs and OCIs as well. Prior to the amendments, all investments made by NRIs in the country were treated as non-repatriable funds.

Background

The last review of investment made by NRIs into the Indian economy was undertaken in June 2013. The then Cabinet Secretary, K.M. Chandrasekhar had chaired a committee put together by market watchdog, SEBI (Securities and Exchange Board of India). The committee intended to review and rationalise the investment options available with NRIs. The committee had decided at the time that NRIs shall not be considered as regular domestic investors and the sub-ceiling of 10 percent was retained. The committee had said, “NRIs/people of Indian origin (PIOs) should continue to be viewed as a distinct market participant enjoying certain privileges in terms of investment permissions not available to foreign investor”.

What Has Changed?

Following the amendments approved by the Cabinet committee, investments made by NRIs in the country will be considered as domestic investments. PIOs, and OCIs who are not Indian citizens will also be given a status equal to that of NRIs, hence their investments too will be considered domestic investments. Now, investments made by NRIs, OCIs and PIOs from their rupee accounts within the country shall be not be treated as foreign investments. Also, non-repatriable NRI funds that are invested in India will have the advantage of being treated as domestic investments.

NRIs have now been provided the opportunity to invest on a non-repatriable basis primarily to provide them a scope of utilising their dormant domestic resources. The aim is to provide NRIs an incentive to invest funds in India without any repatriation rights. Being non-repatriable will not cause a strain on the foreign exchange reserves of the country. The cabinet approved relevant additions to Schedule 4 of FEMA (Transfer or Issue of Security by Persons Resident Outside India) Regulations to bring these changes into effect.

Non-repatriable funds are money that cannot be converted to any foreign currency (despite having been invested by an NRI or PIO or OCI) and may be withdrawn only as Indian Rupee.

How Will This Help the Economy?

“The amendment in FDI for OCIs , NRIs, and PIOs will lead to greater forex remittances and investment”, said the government in an official statement. The underlying intention behind making all these amendments is certainly to stimulate a fresh round of fund inflow into the country’s economy. Prior to the amendment, only the aviation sector was open to full ownership by the NRI community.

NRIs and such investors will now be able to acquire stakes in regulated sectors and in corporations like any other domestic Indian citizen – well beyond the limits set for foreign investors. The government now anticipates an increase in investment across different sectors. Remittance may also see a spurt, thus fuelling a growth in the inflow of foreign exchange.

NDA Government’s FDI Liberalisation Policy

Ever since the Narendra Modi-led NDA government came to power in May 2014, it has sought to liberalise FDI and enhance foreign investment limits in key sectors including insurance, defense, railways, real estate, and manufacture of medical devises. The Prime Minister has actively connected with the Indian community abroad in each of his foreign visits. The aim was to bring in funds from that the community has amassed in these countries and boost the domestic manufacturing sector with the Make in India campaign. Indians abroad have, in turn, urged the PM to allow their investments back home to be treated as domestic investments.

In the NDA government’s first budget, it increased the ceiling on FDI in defence and insurance to 49 percent. Infrastructure in the railways was opened up to 100 percent under the automatic route. Liberalisation of FDI norms for NRIs and the rest of the Indian community abroad is the next logical move.

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