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Investments in India by non – resident Indians – Policy Liberalisation

Under India’s FDI policy, Non-Resident Indians (NRIs) have been permitted to invest in India both on a repatriable and non-repatriable basis, subject to certain conditions. For the purpose of investments in India, NRIs have been categorized as a separate category of investors.

NRIs have so far enjoyed the following additional privileges, as compared to foreign investors.
  • NRIs are permitted to trade on stock exchanges in India.
  • NRIs are permitted to invest in partnership firms and sole proprietorships, subject to certain terms and conditions.
  • Sectoral caps are higher for NRIs in sectors such as air transport activities, some services under civil aviation sector and construction development.
Marching forward with its reformist approach, the Government of India has, in the first week of June, further liberalized the foreign direct investment (FDI) policy relating to investment in India by NRIs through Press Note No. 7 (2015 Series). The changes brought about are two-fold:
1. Change in the definition of NRI
The definition of NRI has been revised to mean an individual resident outside India who is a citizen of India; or an ‘Overseas Citizen of India’ (OCI) cardholder.
Note: Individuals who are “Persons of Indian Origin’ (PIO) cardholders are deemed to be OCI cardholders as the PIO category has been merged with the OCI category.
With the merger of the PIO category with the OCI, NRI would now mean any overseas resident who is either a citizen of India or an OCI cardholder.
2. NRI investments on a non-repatriable basis
All investments by NRIs on a non-repatriable basis will be deemed to be domestic investment on par with the investments made by resident Indians. In order to qualify for such treatment, NRIs will not be allowed to repatriate the money overseas.
AL Analysis: The change in the definition of NRI is a result of recent amendments to the [Indian] Citizenship Act, 19553 and simplifies the categories of foreign investors in India.
This liberalization in FDI policy is expected to increase investments by NRIs in Indian businesses. As NRI investments on a non-repatriable basis will now be treated as domestic investments, restrictive conditions relating to sectoral caps, pricing guidelines, nature of instruments, etc. will not apply to such investments. NRIs can now invest in sectors in which FDI is restricted to a certain percentage – for example, in the case of print media, FDI is restricted to 26%. Now, any non-repatriable investment by NRIs will not be counted towards FDI while calculating such 26% limit, thereby allowing more space for other foreign investors to invest into such sectors. Further, NRIs can also invest (on a nonrepatriable basis) in sectors where FDI is prohibited.
NRIs are required to adhere to the following conditions to qualify for domestic investment status:
  1. They are prohibited from purchasing shares/convertible debentures of companies engaged in the business of Chit Fund, Nidhi Company or company engaged in agricultural/plantation activities or real estate business or construction of farm houses or dealing in Transfer of Development Rights.
  2. No limitation for purchase of shares/convertible debentures of Indian companies whether by public issue or private placement, on non-repatriation basis.
  3. Consideration for purchase of shares/convertible debentures shall be paid by way of inward remittance through normal banking channels from abroad or out of funds held in bank account maintained with an Authorized Dealer or with an authorized bank of India, as the case may be.
  4. Proceeds of sale or redemption under this scheme shall be credited only to Non-Resident Special Rupee account or Non-Resident Ordinary account.
Disclaimer: This blog post is based on the document by Advaya Legal and is only a business guide and not to be construed as legal advice. It is not meant to be exhaustive and does not necessarily deal with every relevant aspect of the issues being discussed.
Please feel free to contact them: contact@advayalegal.com for further clarifications or assistance.
About Advaya Legal:
Advaya Legal is a full service commercial law firm with three offices located strategically in India: two offices in Mumbai and one in Delhi National Capital Region. The firm has associate offices in other major cities of India. Being a full service law firm, Advaya provides a host of services including corporate, commercial and transactional law, M & A, intellectual property, employment, dispute resolution and real estate. The firm has helped several foreign companies establish their business presence in India and provides them ‘complete handholding’ support in the initial phase.
Advaya has a varied clientele of Indian and international companies. The firm is particularly regarded by clients for its high quality legal work, business oriented approach and accessibility.
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