Ojaank IAS Academy

OJAANK IAS ACADEMY

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OJAANK IAS ACADEMY

Changes in foreign investment rules and its impact on the economy

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Recently the Ministry of Finance has issued the Foreign Exchange Management (Foreign Investment) Rules, 2022. If we talk about how foreign investment in India is controlled? So it is currently, by whom is the foreign investment by a person resident in India controlled? Talking about it, it is regulated by the Foreign Exchange Management (Transfer or Issue of any Foreign Security) Regulations, 2004 and the Foreign Exchange Management (Acquisition and Transfer of Immovable Property outside India) Regulations, 2015.
Why is there a need to amend the rules?
What are the amendments under the Foreign Investment Rules?
(1) ODI- Investment by a person resident in India in the equity capital of a foreign entity is classified as ODI (Foreign Direct Investment). Such investment shall continue to be treated as ODI, even if the investment falls to a level below 10% of the paid-up equity capital or such person loses control in the foreign entity.
(2) Limit of total outflow – RBI may, in consultation with the Central Government, fix the limit of total outflow during a financial year on account of financial commitment or Foreign Portfolio Investment (OPI), if necessary. The Reserve Bank of India may prescribe the limit beyond which the amount of financial commitment by a person resident in India in a financial year would require its prior approval.
(3) No Objection Certificate Requirement – Any Indian resident whose account is classified as Non-Performing Assets or Willful Defaulter or is under scrutiny by the Financial Services Regulator, shall be required to obtain a ‘No Objection Certificate’ before making any financial commitment or disinvestment. ‘ will have to be obtained.
(4)Annual Performance Report – Any foreign entity resident in India or receiving equity capital in ODI, shall submit Annual Performance Report (APR) for each foreign entity.
(5) Liberalized Remittance Scheme – Any person resident in India can do ODI by way of investment in equity capital or OPI, subject to the overall limit under the Liberalized Remittance Scheme.
(6) Prohibition – The new rules prohibit Indian residents from investing in foreign entities dealing in real estate, gambling, financial products involving the Indian rupee without the specific approval of the RBI i.e. Reserve Bank of India.
(7) Arms Length Pricing – The amendment states that the pricing shall be on the basis of arms length taking into account the valuation as per any internationally accepted pricing methodology for valuation. (8) Transfer of equity capital – Any Indian resident may transfer equity capital by way of sale to a person resident in India who is eligible for such investment or to a person resident outside India.

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