Overseas Investment Rules Relaxed
The Union finance ministry yesterday relaxed the rules governing overseas investment by domestic firms in line with its strategy of gradually moving towards full convertibility of the rupee on the capital account.
The ministry took the unprecedented step of allowing corporates to use up to 50 per cent of the proceeds of a global depository receipts issue to finance overseas investments. It also empowered a special inter-ministerial committee, chaired by the commerce secretary, to approve investment proposals up to $15 million.
Industry associations and analysts alike hailed the move as an efficient method of utilising the countrys burgeoning foreign exchange reserves, which have touched nearly $25 billion.
The ministry announced that two new fast-track windows will be made available for overseas investments from balances in Exchange Earners Foreign Currency (EEFC) accounts and from investments out of Global Depository Receipts (GDRs). The two windows are in addition to the existing fast track under which the RBI approves proposals for overseas investments up to $4 million within 21 days. The approvals are given on the basis of export track record.
The EEFC window will permit overseas investments up to $15 million without reference to the existing norms. The $15-million ceiling will be inclusive of the $4-million cap under the existing fast track. It will be applied in respect of overseas investments by a corporate over three financial years.
In the case of the GDR window, corporates will be permitted to invest a maximum of 50 per cent of the issue proceeds in overseas ventures. Separate clearance will not be necessary in such cases. Such investments will not be required to neutralise the investment amount through inward remittances over five years, either.All cases not covered under the windows will have to take the special inter-ministerial committee route. The committee has been empowered to approve proposals up to $15 million, up from the existing level of $10 million.
The government has modified the existing norms and parameters. Consequently, investment proposals which are proposed to be financed mainly through GDR proceeds, EEFC balances, or a combination of the two will receive priority.
Additional funds for overseas investment proposals beyond $15 million could be raised through EEFC balances in addition to GDR funds. Exemption from this requirement may be considered where companies have a strong export track record or if there are other compelling benefits.
The ministrys official release stated that no separate clearance will be required from the Centre under section 370 and 372 of the Companies Act.
This is because approval granted by the special committee will include approval under the Companies Act as well.
FREEING FOREX OUTFLOWS
Overseas investment limit raised to $15 million
50% of GDR proceeds allowed to be used to fund overseas investments
Two new fast-track windows opened with RBI
Easier norms for investments clearance by special committee