Investments from rupee accounts of non-resident Indians and OCI and PIO card holders to be considered as domestic; It will help this investor group to pump in funds in sectors with FDI cap
Prime Minister Narendra Modi is all out to woo non-resident Indians (NRIs), overseas citizens of India (OCI) and Person of Indian Origin (PIO).
In the latest move, the Cabinet Committee on Economic Affairs (CCEA) headed by him has approved relaxation in the foreign direct investment (FDI) policy to clarify that investments made by investors in these three categories from their rupee account in India will be treated as domestic investment.
Supreme Court lawyer Abhimanyu Bhandari said this was a positive development which will benefit for both overseas Indian residents looking to invest in India and Indian promoters in sectors where FDI is capped.
"It (liberalisation in FDI policy) will help in luring FDI from NRIs, OCIs and PIOs in sectors where there is a cap on foreign investment," he said.
The amendment approved by the CCEA is more of a clarification on how investments by NRIs, OCIs and PIOs should be treated.
"Since the investment made under schedule 4 of FEMA 20/2000 are on non- repatriation basis, it needs to be clearly provided that such investments, for the purposes of FDI policy, are domestic investments.
This will enable investments by NRIs, OCI cardholders and PIO cardholders under Schedule 4 on non-repatriation basis, across sectors without being subjected to any of the conditions associated to foreign investment," said the cabinet note that proposes revision of the FDI rule.
Devraj Singh, executive director – tax and regulatory services – EY, said multi-brand retail could gain the most from this policy alteration as currently FDI is not allowed in the sector.
"Earlier, even though there was a provision that permitted investment by these groups, there was no clarity. With this, now investment by them (NRIs, OCIs and PIOs) will be taken as domestic investment," he said.
Singh the changed FDI rule will lead to higher forex remittance and investment into the country as is intended by the government.
"The provision should continue to incentivise investments by NRIs, including OCIs and PIOs, resulting in increased investments in the country," reads the cabinet note.
According to government data, FDI inflow into the country between October 2014 and March 2015 grew 38% to $24.95 billion from $18.13 billion during the same period a year earlier. The biggest jump was seen in miscellaneous mechanical and engineering industry at 987% from $122.27 million to $1334.20 million, followed by automobile sector where it climbed 90% to $1534.64 million from $808.24 million.
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