India: Exchange Control

Reserve Bank of India Prohibits Citizens of Macau and Hong Kong from Acquiring / Transferring Immovable Property in India

The RBI includes citizens of "Macau" and "Hong Kong" in the list of Asian countries whose citizens are required to have prior approval of RBI to acquire/ transfer immovable property in India, other than lease not exceeding 5 years. Other Asian countries include Pakistan, Bangladesh, Sri Lanka, Afghanistan, China, Iran, Nepal or Bhutan, where the citizens of these countries cannot acquire property in India unless they have the permission of RBI.

Foreign Direct Investment in Insurance Sector

Foreign Direct Investment ("FDI") policy for Insurance sector has been liberalized. FDI in Insurance sector is permitted up to 49 percent. "Other Insurance Intermediaries" has also been included within the definition of 'Insurance'. FDI in Indian insurance company shall be limited up to 49 percent of the paid up equity share capital.

FDI up to 26 percent shall be under automatic route (i.e. no prior approval is required) and beyond 26 percent and up to 49 percent shall be with Government approval. Further, an Indian insurance company shall ensure that its "ownership" and "control" remains at all times in the hands of resident Indian entities.

FDI Scheme under E-Business platform

RBI, under the e-Biz project of the Government of India has enabled the filing of the following returns online:

  • Advance Remittance Form - used by the companies to report the FDI inflow to RBI.
  • Foreign Collaboration General Permission Route Form - which a company submits to RBI for reporting the issue of eligible instruments to the overseas investor against FDI inflow.

Following are the main features of e-Biz portal:

  • The design of the reporting platform enables the customer to login into the e-Biz portal, download the reporting forms, complete and then upload the same onto the portal using their digitally signed certificates.
  • The banks will be required to download the completed forms, verify the contents from the available documents, if necessary by calling for additional information from the customer and then upload the same for RBI to process and allot the Unique Identification Number.

External Commercial Borrowings denominated in Indian Rupees and Transaction Swap

RBI has decided that recognized non-resident ECB lenders may extend loans in Indian Rupees (INR) subject to the lender mobilizing INR through a swap undertaken with a bank in India. To facilitate ECB lending denominated in INR by overseas lenders, it has now been decided that such lenders may enter into swap transactions with their overseas bank which shall, enter into a back-to-back swap transaction with any bank in India by following a prescribed procedure.

Increase in the Limit of Liberalised Remittance Scheme

RBI has increased the limit of Liberalised Remittance Scheme ("LRS") from USD 1,25,000 to USD 2,50,000 for resident individuals. The banks may now allow remittances by a resident individual up to USD 250,000 per financial year.

If an individual has already remitted any amount under the LRS, then the applicable limit for such an individual would be reduced from the present limit of USD 250,000 for the financial year by the amount already remitted. Further, to facilitate ease of transactions, all the facilities (including private/business visits) for release of exchange/remittances for current account transactions available to resident individuals shall now be subsumed under the overall limit of USD 250,000.

External Commercial Borrowings for Low Cost Affordable Housing Projects

RBI has decided that the scheme of raising ECB by eligible borrowers for low cost affordable housing projects will continue for FY 2015-16 with the same terms as before with the following changes:

  • Developers/builders should have a minimum of 3 years' experience in undertaking residential projects as against 5 years prescribed earlier and should have good track record in terms of quality and delivery.
  • The condition of minimum paid-up capital of not less than INR 50 Millions, as per the latest audited balance sheet, for Housing Finance Companies stands withdrawn. However, the condition of the minimum Net Owned Funds of INR 3 billion for the past 3 financial years remains unchanged.
  • The aggregate limit for ECB under the low cost affordable housing scheme has been extended with a ceiling of USD 1 billion for 2013-2014 and 2014-2015.
  • The ECB availed by developers and builders shall be swapped into Rupees for the entire maturity on fully hedged basis.

100 Percent FDI in Construction Development Sector

The Department of Industrial Policy and Promotion ("DIPP") has allowed 100 percent FDI in Construction Development sector under automatic route subject to the following conditions:

  • No Minimum land area is to be developed in case of serviced house plots is and in the case of construction-development projects a minimum floor area of 20,000 sq. mts. is to be developed.
  • Investee Company is to bring in minimum FDI of USD 5 million within 6 months of commencement of project. The project is to commence from the date of approval by the statutory authority of the building lay out plan. Subsequent portion of FDI can be brought till the ten years from the commencement or before the completion of project, whichever expires earlier.
  • An investor can exit on completion of the project or after development of trunk infrastructure i.e. roads, water supply, street lighting, drainage and sewerage.
  • Subject to facts and circumstances government may permit return of FDI or transfer of stake by one non-resident investor to another non-resident investor, before the completion of project. However subject to consideration by Foreign Investment Promotion Board ("FIPB") on case to case basis
  • Subject to facts and circumstances government may permit return of FDI or transfer of stake by one non-resident investor to another non-resident investor, before the completion of project. However subject to consideration by Foreign Investment Promotion Board ("FIPB") on case to case basis
  • The Indian investee company permitted to sell only developed plots which will mean plots where trunk infrastructure i.e. roads, water supply, street lighting, drainage and sewerage, have been made available.
  • All necessary approvals need to be obtained including those of the building/layout plans, developing internal and peripheral areas and other infrastructure facilities, payment of development, external development and other charges and complying with all other requirements as prescribed under applicable rules/bye-laws/regulations of the State Government/ Municipal/Local Body concerned.
  • The approving State Government/Municipal/Local Body concerned, is to monitor compliance of the above conditions by the developer.

FDI in Pharmaceuticals sector with special exception for medical devices

The DIPP has revised the limits of FDI in the Pharmaceutical sector and allowed 100 percent FDI in pharmaceuticals sector for greenfield investment projects under automatic route and 100 percent FDI in pharmaceuticals sector for brownfield investment projects under Government approval route subject to the following conditions:

  • Non-compete clause not allowed except in special circumstances with the approval of FIPB.
  • The prospective investor and prospective investee are required to provide a certificate along with FIPB application;
  • The Government may incorporate appropriate conditions for FDI in brownfield cases, at the time of granting approval.

Further, it is to note that 100 percent FDI under automatic route for manufacturing of medical devices for both greenfield investment and brownfield investment will not be subject to the above mentioned conditions.

Foreign Investment by Foreign Portfolio Investors in India

RBI has revised the position of investment by Foreign Portfolio Investors ("FPI's") in India

  • Future investment in government securities to be made in government bonds with a minimum residual maturity of three years.
  • FPIs shall be permitted to invest in government securities, the coupons received on their existing investments in government securities. These investments shall be kept outside the applicable limit (currently USD 30 billion) for investments by FPIs in government securities. Authorised Dealer banks shall ensure reporting of such investments as may be prescribed from time to time.
  • All future investment in the debt market to be made with a minimum residual maturity of three years.
  • Investment to be made in corporate bonds in few circumstances.
  • FPIs not allowed any further investment in liquid and money market mutual fund schemes.

However limitations of lock-in period and selling the securities to domestic investors are not applicable.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

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