Saturday , January 23 2021

New Standards to Relieve FDI Restrictions by Indian Company Joint Ventures

In an attempt to facilitate the flow of foreign funds for legitimate business activities, the government could soon ease restrictions on foreign direct investment (FDI) by joint ventures (JVs) or wholly owned subsidiaries (WOS) of an Indian company without categorizing such investments. as a "suspect" involving a round trip of funds.

The existing legal framework under FEMA does not allow FDI by a foreign joint venture or WOS of an Indian party without prior RBI approval. Similarly, there are restrictions on Indian entities for making foreign direct investment (ODI) in a foreign entity that already has existing FDI investment structures in India.

Official sources said the changes would soon be made to existing foreign direct investment (ODI) regulations to ease restrictions and put these investments (IDE and ODI) on the automatic route (without prior RBI approval).

The changes became important in the context of the slowdown in the Indian economy and the resulting lack of investment by the corporate sector. The RBI's rigorous vision to stop the "round trip" of funds has impacted the abilities of certain Indian companies that made ODI outside India to attract FDI in India, even to group entities, even for legitimate business in good faith. .

A High Level Advisory Group (HLAG), chaired by economist Surjit Bhalla, on how to increase India's exports, in its report also suggested a radical change in FDI regulations, with the aim of attracting funds for building business in the country. .

Sources said the Department of Industry and Internal Trade Promotion (DPIIT) is also considering the report to finalize changes to the Indian Party's WOS JV FDI Press Release. Official sources said that while the changes would give free access to FDI by an Indian entity through its own JV or WOS, it would be necessary to establish that this flow of funds is for genuine business interests only and that these funds are invested as FDI in India. through appropriate banking channels.

Consequently, it is likely that an investment by a foreign entity (in which the ODI is being made) whose total amount of existing FDI does not exceed 25% of its consolidated net worth will not be considered as round round trip. or in violation of ODI regulations.

The net worth of the overseas entity, in this case, should be at least $ 10 million. In addition, any additional FDI may be allowed as long as these funds are not directly or indirectly from India. HLAC in its report also recommended exemption for overseas listed companies, ie overseas listed companies under the Financial Action Task Force (FATF) jurisdictions (with market capitalization of certain specified limits), should also be able to invest in India regardless of their ownership interest held by persons residing in India.

ODIs include investments made outside India by an Indian by way of signing a foreign entity's memorandum or buying existing shares of a foreign entity, either by market purchase or private placement or through stock exchanges, meaning an interest in the foreign entity.

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