RBI for proper monitoring of foreign direct investment

The Reserve Bank of India (RBI) has revamped its overseas direct investment application process to provide banks fast and easy accessibility to data for reference purposes and to improve the “coverage and ensure proper monitoring of the flows in a dynamic environment”.

The new process will be much more nuanced than earlier, where the Indian party has to furnish more details about its investments and remittances. The new scheme is for more nuanced information on direct investments in joint ventures, wholly-owned subsidiaries and any remittances and other forms of financial commitments by an Indian party (which can be any Indian corporate entity or individual).

It is not clear yet if the same set of rules will apply for remitting money abroad under the liberalised remittance scheme (LRS), but if so, it will be dissemination of information on a granular basis. Under the LRS scheme, an individual can freely take out $250,000 every year. A company can invest up to a certain percentage of its net worth (equity plus reserves) in overseas subsidiaries and hence, there is no absolute cap prescribed by RBI.

While remitting money abroad in the individual capacity, an individual just has to check certain fields and even a broad-based description is not required. A transaction could have been just a “gift” or for “maintenance of relative”. Now, it would be much more granular, otherwise the bank facilitating the transaction (all remittances have to be channelled through authorised banks) and the individual would be in trouble as the “Reserve Bank will take a serious view on non-compliance with the guidelines / instructions and initiate penal action as considered necessary.”

The central bank, in its notification, said it wanted to “capture all data pertaining to the IP (Indian Party) undertaking ODI (Overseas Direct Investment) as well as the related transaction.”

The remitter will be given a unique identification number (UIN) and any post investment changes subsequent to the allotment of the UIN would have to be reported, the central bank said in a notification on its website.

While this is largely technical in nature, the shadow of the recent Panama Papers revelation cannot be ruled out. More than 500 Indians were named to have accounts in overseas locations. However, Reserve Bank of India Governor Raghuram Rajan pointed out more than once that this could be because of legitimate reasons as well.