Changes to the ODI
regime
Prior to the
amendment, subject to some restrictions, Indian corporates were allowed to
invest upto 4 times their net worth in setting up joint ventures (“JV”) and
wholly owned subsidiaries (“WOS”) outside India, under the automatic route. The
limit for ODI under the automatic route for all fresh ODI transactions has been
capped at 100 percent of the net worth of an Indian party. The Circular issued
clearly lays down that the new limit would be applicable for all the prospective
investments and would not affect the investments which have already been made.
It also appears that further investments in a JV or WOS already set up should
continue under the earlier limits, although the Circular is not entirely clear
on this. The revised limit also applies to overseas investments in the energy
and natural resources sectors; it would however, not affect investments by
Navaratna public sector undertakings. Proposed ODI in excess of the prescribed
limit of 100 percent would be considered by the RBI on a case to case
basis.
Changes to the
LRS
Resident individuals
were allowed to invest up to a limit of USD 200,000 per financial year under the
LRS for all permitted current and capital account transactions. The limit has
now been reduced to USD 75,000 per financial year for permitted purposes.
Further, a new limitation has been imposed to restrict the use of LRS by
residents for acquisition of immoveable property abroad, directly or
indirectly.
In addition to
prescribing the new limit, RBI has, through
the amendment, also permitted residents to set up joint
ventures and wholly owned subsidiaries (subject to certain restrictions) by
utilizing the limits under the LRS.
The relevant
notifications to bring about the changes are expected to be issued in due
course.
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