On Monday, the Ministry of Finance notified the consolidated rules for overseas investments by Indian entities to facilitate ease of doing business. The Foreign Exchange Management (Overseas Investments) Rules 2022 will contain the existing provisions on Overseas Investments and the Acquisition and Transfer of Immovable Property Outside India Regulations 2015.

“Given the changing needs of Indian businesses, Indian businesses need to be part of global value chains in an increasingly integrated global market. The revised overseas investment regulatory framework simplifies the existing overseas investment framework and aligns with current business, and economic dynamics remain consistent,” the Finance Ministry said in a statement.

The introduction of clear regulations on Overseas Direct Investment (ODI) and Overseas Portfolio Investment (OPI) automates previously approved transactions related to various types of outbound investment, significantly improving “ease of doing business”.

Last year, in consultation with RBI, the government set out to simplify the rules across the board. The “Draft Regulations on Foreign Exchange Management (Overseas Investment)” and the “Draft Regulations on Foreign Exchange Management (Overseas Investments)” have also been publicly solicited for comments.

The new rules include overseas investments in International Financial Services Centres (IFSCs) by Indian residents. Indian residents can make overseas investments in IFSCs in India within limits, according to an announcement issued by the Ministry of Finance.

It said that Indian residents could contribute to investment funds or vehicles set up in IFSC as Overseas Portfolio Investments (OPI). It added that resident individuals might make overseas direct investments (ODIs) in foreign entities at the International Financial Services Centre. This includes entities engaged in financial services activities (except banking and insurance) if the entity does not have a subsidiary or the next subsidiary is in the IFSC. In addition, resident individuals will also have control over foreign entities.

According to the notice, authorised dealer banks, including their overseas branches, may acquire or transfer foreign securities in the normal course of their banking business, subject to the terms of the host country’s jurisdiction. Any resident individual may conduct ODI through equity or OPI, subject to the overall cap of the Reserve Bank’s Liberal Remittance Scheme (LRS).

The LRS allows individuals to make outbound investments of up to $2,50,000 per year. Regarding companies, Indian entities can keep OPIs within 50% of their net assets at the date of their last audited balance sheet, the circular said.
It said that companies could conduct ODI by way of equity capital investment to carry out genuine commercial activities. The total financial commitment of Indian entities to all foreign entities when undertaking such commitments would not exceed the amount as of the last audited 400% of the net assets as indicated by the balance sheet date or as indicated by the RBI, it added.