India Clarifies Overseas Investment Rules To Promote Ease Of Doing Business

The revised regulatory framework will come into effect from Aug. 22.
<div class="paragraphs"><p>A lady holding Rs 500 banknotes.&nbsp;(Source: Usha Kunji/BQ Prime)</p></div>
A lady holding Rs 500 banknotes. (Source: Usha Kunji/BQ Prime)

The Finance Ministry has notified the consolidated rules on the framework that governs overseas investments.

The move takes into account the evolving needs of businesses in India, in an increasingly integrated global market and aims to help them be a part of the global value chain, said the press release issued by the ministry on Monday.

The revised regulatory framework will come into effect from Aug. 22.

Clarity on Overseas Direct Investment and Overseas Portfolio Investment has been brought in and various overseas investment-related transactions that were earlier under approval route are now under automatic route, significantly enhancing 'ease of doing business'.
Finance Ministry Press Release

Overseas investment by a person residing in the country is overseen 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.

Last year, the central government in consultation with the Reserve Bank of India undertook an exercise to simplify the regulations and put out drafts of the Foreign Exchange Management (Overseas Investment) Rules and Foreign Exchange Management (Overseas Investment) Regulations in the public domain for consultation.

It included regulations pertaining to overseas investments and acquisition and transfer of immovable property outside India.

Among the important notifications, the government has clarified that "net worth" will retain the same meaning as stipulated in Clause (57) of Section 2 of the Companies Act, 2013.

According to the notification, “net worth” in a registered partnership firm or Limited Liability Partnership will be the sum of the capital contribution of (all the) partners and undistributed profits of the partners. This would be after deducting the aggregate value of the accumulated losses, deferred expenditure and miscellaneous expenditure which have not been written off, as per the last audited balance sheet.

The notification circular also specified that overseas direct investment would henceforth mean investments:

  • By way of acquisition of unlisted equity capital of a foreign entity.

  • Subscription as a part of the memorandum of association of a foreign entity.

  • Investment in 10% or more of the paid-up equity capital of a listed foreign entity.

  • Even in cases where investment with control is less than 10% of the paid-up equity capital of a listed foreign entity.

On overseas portfolio investment, the government notified that this would include investments other than ODI in foreign securities, but not in any unlisted debt instruments or any security issued by a person resident in India who is not in an International Financial Services Centre.

The revised rules also include overseas investment in IFSC by a person resident in India.

A person resident in India may make overseas investment in an IFSC in India within the limits and make contribution to an investment fund or vehicle set up in an IFSC as overseas portfolio investment, the notification said.


Janani is a policy correspondent tracking the economy, ...more
Get Regular Updates