The Reserve Bank of India (“RBI”) regularly issues circulars and notifications for creating a favorable economic climate in the country and to facilitate growth in the economy. This bulletin highlights the changes made by RBI on overseas remittance facilities available to Non-Resident Indians (“NRIs”) covered in the master circular issued by RBI on February 21, 2008. It also gives an insight into notifications released by the Government of India (“GOI”) liberalizing Foreign Direct Investment (“FDI”) policy in various sectors.
1. RBI Circular
Remittance Facilities for NRIs, Persons of Indian Origin (“PIOs”)/Foreign Nationals (A.P. (DIR Series) Circular No. 04/2007-08) dated February 21, 2008
This master circular enumerates the remittances facilities available to NRIs and PIOs. Remittance of capital assets in India by a person whether resident in or outside India, requires the prior approval of the RBI. The important provisions of the master circular have been summarized below:
1.1 Remittance of current income: NRIs and PIOs are allowed to remit their current income like rent, dividend, pension, interest even if they do not maintain Non-Resident Ordinary Rupee account1 (“NRO”). Further, they can also credit their current income to their Non-Resident (External) Rupee account2 (“NRE”). This can be done only after an appropriate certificate is obtained by a Chartered Accountant certifying that the amount proposed to be remitted is eligible for remittance only if income-tax has been deducted on such income.
1.2 Remittance of assets by a foreign national of non-Indian origin: A foreigner who has (a) retired from an employment in India, (b) inherited assets from a person resident in India and (c) who is a widow of an Indian citizen who was resident in India, are permitted to remit an amount up to US$ one million, per financial year. This can be done only on production of an undertaking by the remitter and certificate by a Chartered Accountant certifying acquisition or inheritance of assets by the remitter.
1.3 Remittance of assets by NRIs/PIOs: NRIs and PIOs are permitted to remit up to US$ one million, per financial year, out of the balance held in their NRO accounts or from the sale proceeds of assets, for all bona fide purpose by giving an undertaking and certificate by a Chartered Accountant. Further, to remit the sale proceeds of assets acquired by way of inheritance or legacy or settlement, NRIs and PIOs have to submit their undertaking proving the inheritance or legacy of those assets and certificate by a Chartered Accountant.
1.4 Repatriation of sale proceeds of residential property purchased by NRIs and PIOs out of foreign exchange: Repatriation of sale proceeds of residential property purchased by NRIs and PIOs are permitted to the extent of the amount paid for acquisition of immovable property in foreign exchange received through banking channels and up to the maximum of two residential properties. Further, NRIs and PIOs can also remit funds of application, earnest money with interest on account of non-allotment of any residential or commercial property provided that the original payment was made out of NRE account or Foreign Currency Non-Resident account.
The GOI has further liberalized FDI in key economic sectors like Credit Information Companies (“CICs”), Commodity Exchanges, Industrial Parks, Civil Aviation, Petroleum and Mining, six press notes have been issued in this regard. A sequential synopsis of these amendments is covered below:
2.1 FDI in CICs:3 The FDI limit in credit information companies have been revised to 49%, subject to specific approval of GOI and regulatory clearance from RBI. Further, Foreign Institutional Investment (“FII”) up to 24% is permitted for listed CICs. However, such FII investment would be permitted subject to certain conditions namely (a) no single investor shall hold, directly or indirectly, more than 10% stake, (b) any acquisition by an investor in excess of 1% has to be reported to the RBI, (c) FII investing in CICs are not permitted to seek a representation on the Board of Directors based upon their shareholding.
Further, GOI has decided that “Credit Reference Agencies” are to be deleted from the list of non- banking finance companies activities permitted for FDI up to 100% through automatic route.
2.2 FDI in Commodity Exchanges:4 Under this sector, FDI has been limited to 26% and FII to 23%, with the condition that no single investor can hold more than 5% stake.
2.3 FDI in Industrial Parks:5 Further, FDI norms for real estate and industrial parks too have been eased. FDI up to 100 % through automatic route is allowed in both the sectors. However, earlier companies with a minimum capitalization6 were restricted to repatriate the original investment for three years.7 This lock-in period has now been removed.
2.4 FDI in Civil Aviation Sector:8 The FDI limit has been raised from 49% to 74% through automatic route in non-scheduled, chartered and cargo airlines that do not have any participation by foreign airlines. However, there is no increase in the foreign ownership cap of 49% in domestic passenger air services. Further, 74% FDI under automatic route is now allowed in ground handling services subject to sectoral regulations after security scrutiny. 100% FDI through automatic route is also permitted for maintenance and repair organizations, flying training institutes, technical training institutions, helicopter services and seaplane
services. However, these projects need clearance by the safety regulator, Directorate General of Civil Aviation.
2.5 FDI in Petroleum:9 FDI up to 100 % is permitted under the automatic route in exploration, petroleum product marketing, product pipelines, natural gas and petroleum refining in the private sector. GOI has removed the condition that a foreign investor must divest up to 26% equity in favor of an Indian partner or the public, within five years for trading and marketing of petroleum products. The equity cap in petroleum refining by public sector units has been increased from 26% to 49%.
Further, in the oil refining business FDI has been raised from 26% to 49% with prior approval of Foreign Investment Promotion Board.
2.6 FDI in Mining:10 100% foreign ownership is permitted in few mining sectors like titanium mining with prior GOI approval, only if the mineral separation activity by a foreign company is accompanied by investment in local value addition units and transfer of technology. And, disposal of tailings during the mineral separation shall be carried out as per Atomic Energy (Radiation Protection) Rules, 2004 and the Atomic Energy (Safe Disposal of Radioactive Wastes) Rules, 1987.
The constant changes made by GOI in the fiscal policy over the past few years to liberalize the Indian economy and to integrate it with the global economy are widely acknowledged. As an effect of these policy changes, there is an enormous increase in the overseas investment from foreign companies who wish to participate in the economic growth of the Indian market. To augment higher growth and greater economic prosperity these regulatory changes are the need of the hour.
1 A NRO account in the form of current, savings, recurring or fixed deposit accounts can be opened by any person resident outside India with an authorized bank for bona fide rupee transactions.
2 NRIs can open and maintain NRE accounts with an authorized bank. For opening these accounts, the funds are required to be remitted to India by means of foreign exchange remittances from abroad through banking channels in an approved manner.
3 Government Notification: Vide Press Note 1 (2008) dated March 12, 2008 issued by the Department of Industrial Policy and Promotion under the Ministry of Commerce & Industry.
4 Ibid Press Note 2 (2008).
5 Ibid Press Note 3 (2008).
6 The minimum capitalization is US$ 10 million for wholly-owned subsidiaries and US$ 5 million for joint ventures with Indian partners.
7 Three years calculated from the date of completion of minimum capitalization. The investor was, however, allowed to exit earlier with prior approval of the Foreign Investment Promotion Board.
8Ibid Press Note 4 (2008).
9 Ibid Press Note 5 (2008).
10 Ibid Press Note 6 (2008).