India: India Launches New Permanent Residency Scheme

Last Updated: 5 September 2016
Article by Shinoj Koshy and Soumitra Bose

Introduction

The Union Cabinet on 31 August 2016 has approved the scheme for grant of Permanent Residency Status ("PRS") to foreign investors subject to the relevant conditions as specified in the FDI Policy notified by the Government from time to time. Incidentally the announcement of the scheme coincides with the introduction of a new proposal by the U.S. Citizenship and Immigration Services ("USCIS") on 26 August 2016 which would allow certain international entrepreneurs to be considered for parole (temporary permission to be in the United States) so that they may start or scale their businesses in the United States.

Current Position

Until now, foreign investors entering into India have only been eligible for business visas lasting up to five years. A business visa is strictly granted to such persons who wish to make a business related trip to India, for instance establishment of a business or industrial venture, purchase or sale of industrial / commercial products, or establishing contact on behalf of an overseas company in relation to any commercial or business related activities in India. Further, the applicant must be a person of assured financial standing and must have expertise in the field of the intended business.

A business visa with multiple entry facility can be granted for a period up to 5 years (United States citizens can get 5 years or 10 years multiple entry visa). A stay stipulation of a maximum period of 6 months will be prescribed for each visit keeping in view the nature of the business activity. The visa can be extended to a maximum of 5 years in cases where the visa is granted for a period less than 5 years. However, the gross sales / turnover from the business activities, for which the foreigner has been granted visa, should not be less than Rs.1 crore per annum and such turnover should have been achieved within 2 years of setting up the business.

Similarly in the United States (U.S.), the EB-5 visa program allows foreign nationals to obtain green cards if they invest at least U.S $ 500,000 in American businesses and plan to create or preserve 10 permanent full-time jobs for qualified U.S. workers. The program was designed to help create jobs and increase foreign investment in the U.S. economy.

Proposed Scheme

In the proposed PRS scheme, residency will be granted for a period of 10 years with multiple entries. This can be reviewed for another 10 years if the PRS holder has not come to adverse notice. In order to avail this scheme, the foreign investor will have to invest a minimum of U.S. $ 1.5 million to be brought within 18 months or U.S. $ 4 million to be brought within 36 months. Further, the foreign investment should result in generating employment to at least 20 resident Indians every financial year. There shall be no stay stipulation and the holders shall be exempt from registration requirements. PRS holders will be allowed to purchase one residential property for dwelling purpose. The older regime required the spouse / dependents of the investor to apply for entry visa. However, the PRS scheme proposes to permit the spouse / dependents of the PRS holder to take up employment in private sector and undertake studies in India.

As regards the proposal by USCIS, it would allow the Department of Homeland Security (DHS) to use its existing discretionary statutory parole authority for entrepreneurs of startup entities whose stay in the United States would provide a significant public benefit through the substantial and demonstrated potential for rapid business growth and job creation. Under this proposed rule, DHS may parole, on a case-by-case basis, eligible entrepreneurs of startup enterprises:

  • who have a significant ownership interest in the startup (at least 15 percent) and have an active and central role to its operations;
  • whose startup was formed in the United States within the past three years; and
  • whose startup has substantial and demonstrated potential for rapid business growth and job creation, as evidenced by:

    • receiving significant investment of capital (at least $345,000) from certain qualified U.S. investors with established records of successful investments;
    • receiving significant awards or grants (at least $100,000) from certain federal, state or local government entities; or
    • partially satisfying one or both of the above criteria in addition to other reliable and compelling evidence of the startup entity's substantial potential for rapid growth and job creation.

Under the proposed rule, entrepreneurs may be granted an initial stay of up to two years to oversee and grow their startup entity in the U.S. A subsequent request for re-parole (for up to three additional years) would be considered only if the entrepreneur and the startup entity continue to provide a significant public benefit as evidenced by substantial increases in capital investment, revenue or job creation.

Analysis

Both India and U.S. had consciously made a decision in 2015 to elevate the India-US Strategic Dialogue to a Strategic and Commercial Dialogue, reflecting the significance of the trade and economic engagement between the two countries. With the focus on ease of doing business, innovation and entrepreneurship various complementary policies and measures have been introduced by both countries. There has been an increase of 500% in FDI inflows from the U.S. in a short period of 2 years. In this context the PRS scheme is an indication of enhanced openness towards foreign investors. Once implemented it shall set in motion increased investments by foreign investors, who will be able to avoid the lengthy and difficult business visa process.

Similarly, in the U.S., the new proposal shall have major impact on entrepreneurship and potentially on the broader economy of the country. It will open up a route for skilled entrepreneurs from developing nations such as India to acquire access to advanced infrastructure, start-up ecosystem and facilities available in the U.S. There are, however, concerns that the Obama administration may have exceeded its mandate by using the humanitarian parole to give temporary status to immigrant entrepreneurs. Ordinarily, the parole is granted to admit foreigners into the U.S. for a temporary period of time due to a compelling emergency, for instance the Cubans fleeing the Castro regime, and to admit 32,000 Hungarians, who escaped the 1956 Soviet invasion. The provision was originally intended to be a very limited power to be exercised by the President to deal with emergencies. Experts now believe that the new proposal dilutes the parole criteria, and creates a new category to allow immigrants.

Nevertheless, an observation needs to be made in respect of the timing of both the schemes. It is unlikely to be a mere happenstance that both the proposals were made close to each other. In fact, the PRS scheme was announced during the visit of the U.S. Secretary of State to India. The proposals will be complementary to each other, and once implemented will create opportunities for entrepreneurs from India to acquire access to better infrastructural environment, to further enhance and improve their products and services. Similarly, established businesses and investors from the U.S. will have the ability to expand their access to the talent and market in India. It will lead to creation of jobs and potentially boost the economies of both the countries. It is a significant step towards the enhanced commercial and trade relationship of the two countries.

The PRS scheme, however, may give rise to security concerns for the country. Ordinarily India has always been vigilant about foreign investments from countries with which it has had a history of starined and difficult diplomatic relations. This is also reflected in the foreign investment laws which have placed stringent conditions in respect of investments from countries such as Pakistan and Bangladesh. With the new scheme, extremist groups, which are not particularly devoid of funds, may try to route investments into India, secure residency permits and thereby circumvent the registration requirements and scout soft targets in the country. Simply stated, it is probable that there can be recurrence of a David Headley scenario, wherein the simplicity and ease of the PRS scheme is abused.

Although the scheme is evidence of the government's commitment to make business travel and relocation easier, India will need to be extra vigilant and establish a robust scrutiny and security regime to ensure that the increase in "ease of doing business" does not compromise its national security interests.

Mr. Shinoj Koshy is a partner with Luthra & Luthra based in the New Delhi office. Mr. Koshy is a dual-qualified lawyer with extensive experience in domestic and cross-border M&A transactions. His practice focuses on corporate transactions, particularly M&A (in telecom, logistics and outsourcing), joint ventures, corporate finance (equity and debt listings through primary and secondary offerings) and commercial dispute resolution (shareholder disputes and post-closing pricing disputes in M&A). He has advised several corporates and PE funds on foreign investment strategies for emerging markets like India and countries in Middle East & North Africa.

He is also associated with industry associations like FICCI and Invest India, advising them on ways to promote FDI in key sectors like infrastructure, manufacturing and retail. Additionally he is also a member of the India-Jersey Advisory Group advising the States of Jersey government on its interactions with the Government of India.

The authors, Shinoj Koshy is a partner & Soumitra Bose, an associate with Luthra & Luthra Law Offices. The views expressed here are their own and not of the Firm.

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