The government on Tuesday said an Indian corporate entity can make overseas investments above the prescribed limit in strategic sectors such as energy and natural resources after obtaining necessary clearances.
Releasing an explanatory note on the Foreign Direct Investment Rules and Regulations 2022, the finance ministry said that a non-financial sector entity can make a direct investment through the automatic route in a foreign entity engaged in financial services business (except banking and insurance).
The earlier regime did not permit foreign direct investment by an Indian non-financial sector entity in a foreign financial services firm.
“An Indian entity not engaged in the insurance sector may make a direct investment abroad in general and health insurance where such insurance business supports the principal activity undertaken abroad by such Indian entity,” it said.
The government on Monday issued two gazette notifications distinguishing between overseas direct investment and overseas portfolio investment.
In the previous regulations, overseas portfolio investments were not clearly defined.
The remaining terms such as control, disinvestment, withdrawal from subsidiaries and financial services activities, among others, are also defined.
The note further said that a new concept of strategic sector has been introduced under the new regime where the government will have the power to permit overseas investment beyond the limits stipulated in the Overseas Investment Rules.
“The strategic sector will include energy, natural resources and such other sectors as may be decided by the government from time to time in view of changing business requirements,” it added.
The new mode proposes that items on the approval route should now be resolved under the automatic route.
Under the earlier regime, the issuance of corporate guarantees to or on behalf of a second or subsequent tier subsidiary (SDS) of an Indian company required the approval of the Reserve Bank, the release said, adding that the new regime includes this automatically.
Any disinvestment involving write-offs in excess of the specified limits requires the prior approval of the Reserve Bank. The new regime brings such transactions through an automatic route subject to the provisions contained in the Overseas Investment Rules and Regulations, the finance ministry said.
Under the new regime, it said, acquisition of equity in a foreign company on deferred payment basis is allowed through the automatic route, which was earlier through the approval route.
An Indian entity not engaged in financial services business in India can make a foreign direct investment (ODI) in a foreign entity at the International Financial Services Center (IFSC) that is directly or indirectly engaged in financial services business , excluding banking or insurance although it does not meet the net profit condition as required under these rules, he noted.
In terms of compliance burden, the new regime has also introduced the option of late filing fee for filing various returns/documents related to foreign investment on lines similar to those for transactions related to foreign investment and external commercial loans.
This will greatly facilitate compliance requirements, the ministry said.
Separate reporting requirements for creation/dissolution of subsidiaries or change in shareholding pattern of the foreign company have now been waived, it added.
“In view of the evolving needs of business in India, in an increasingly integrated global market, there is a need for Indian corporations to be part of the global value chain.
“The revised overseas investment regulatory framework envisages simplification of the existing overseas investment framework and has been brought into line with the current business and economic dynamics,” the finance ministry said while issuing these notifications on Monday.
Clarity has been brought in on foreign direct investment and overseas portfolio investment and various transactions related to overseas investment, which were previously under the approval process, are now under the automatic route, significantly improving the “ease of doing business”, it said him.
(Except for the headline, this story was not edited by NDTV staff and was published by a syndicated channel.)