Foreign Exchange Management (Overseas Investment) Regulations, 2022 (22 Aug 2022)

RESERVE BANK OF INDIA
(FOREIGN EXCHANGE DEPARTMENT)
CENTRAL OFFICE
MUMBAI 400 001

No. FEMA 400/2022-RB

August 22, 2022

Foreign Exchange Management (Overseas Investment) Regulations, 2022

In exercise of the powers conferred by sub-section (1) and clause (a) of sub-section (2) of section 47 of the Foreign Exchange Management Act, 1999 (42 of 1999), the Reserve Bank hereby makes the following regulations, namely:–

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Foreign Exchange Management (Overseas Investment) Directions, 2022 (Dated 22 Aug 2022)

RBI/2022-2023/110
A.P. (DIR Series) Circular No.12

August 22, 2022

All Category – I Authorised Dealer Banks

Madam/Sir

Foreign Exchange Management (Overseas Investment) Directions, 2022

Overseas investments by persons resident in India enhance the scale and scope of business operations of Indian entrepreneurs by providing global opportunities for growth. Such ventures through easier access to technology, research and development, a wider global market and reduced cost of capital along with other benefits increase the competitiveness of Indian entities and boost their brand value. These overseas investments are also important drivers of foreign trade and technology transfer thus boosting domestic employment, investment and growth through such interlinkages.

2. In keeping with the spirit of liberalisation and to promote ease of doing business, the Central Government and the Reserve Bank of India have been progressively simplifying the procedures and rationalising the rules and regulations under the Foreign Exchange Management Act, 1999. In this direction, a significant step has been taken with operationalisation of a new Overseas Investment regime. Foreign Exchange Management (Overseas Investment) Rules, 2022 have been notified by the Central Government vide Notification No. G.S.R. 646(E) dated August 22, 2022 and Foreign Exchange Management (Overseas Investment) Regulations, 2022 have been notified by the Reserve Bank vide Notification No. FEMA 400/2022-RB dated August 22, 2022 in supersession of the Notification No. FEMA 120/2004-RB dated July 07, 2004 [Foreign Exchange Management (Transfer or Issue of any Foreign Security) (Amendment) Regulations, 2004] and Notification No. FEMA 7 (R)/2015-RB dated January 21, 2016 [Foreign Exchange Management (Acquisition and Transfer of Immovable Property Outside India) Regulations, 2015]. The new regime simplifies the existing framework for overseas investment by persons resident in India to cover wider economic activity and significantly reduces the need for seeking specific approvals. This will reduce the compliance burden and associated compliance costs.

3. Some of the significant changes brought about through the new rules and regulations are summarised below:

(i) enhanced clarity with respect to various definitions;

(ii) introduction of the concept of “strategic sector”;

(iii) dispensing with the requirement of approval for:

  1. deferred payment of consideration;
  2. investment/disinvestment by persons resident in India under investigation by any investigative agency/regulatory body;
  3. issuance of corporate guarantees to or on behalf of second or subsequent level step down subsidiary (SDS);
  4. write-off on account of disinvestment;

(iv) introduction of “Late Submission Fee (LSF)” for reporting delays.

4. The detailed operational instructions in this regard are given in Annex-I. The instructions contained in these directions shall supersede the instructions contained in the circulars listed in Annex-II.

5. The revised reporting forms and instructions for filling up the forms under the new regime are being provided on Reserve Bank’s website in Part VIII of the Master Direction no. 18 on ‘Reporting under Foreign Exchange Management Act, 1999’ dated January 01, 2016.

6. AD banks may bring the contents of the circular to the notice of their customers/constituents concerned.

7. The directions contained in this circular have been issued under Section 10(4) and 11(1) of the Foreign Exchange Management Act, 1999 (42 of 1999) and are without prejudice to permissions/ approvals, if any, required under any other law.

Yours faithfully

Ajay Kumar Misra
Chief General Manager-in-Charge

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Another step towards Ease of Doing Business-Overseas investment rules and regulations notified

In line with the amendment in the Foreign Exchange Management Act 2015, Outward Investments Rules have been framed by the Government of India in consultation with the Reserve Bank. Presently, the overseas investment by a person resident in India is governed by the Foreign Exchange Management (Transfer or Issue of Any Foreign Security) Regulations, 2004 and the Foreign Exchange Management (Acquisition and Transfer of Immovable Property Outside India) Regulations, 2015.

The Government of India in consultation with the Reserve Bank undertook a comprehensive exercise to simplify these regulations. Draft Foreign Exchange Management (Overseas Investment) Rules and draft Foreign Exchange Management (Overseas Investment) Regulations were also put in the public domain for consultations. Extant regulations pertaining to Overseas Investments and Acquisition and Transfer of Immovable Property Outside India have been subsumed within these rules and regulations.

In view of the evolving needs of businesses in India, in an increasingly integrated global market, there is need of Indian corporates to be part of global value chain. The revised regulatory framework for overseas investment provides for simplification of the existing framework for overseas investment and has been aligned with the current business and economic dynamics. Clarity on Overseas Direct Investment and Overseas Portfolio Investment has been brought in and various overseas investment related transactions that were earlier under approval route are now under automatic route, significantly enhancing “Ease of Doing Business”.

Overseas Investment Rules and Regulations, 2022 can be accessed at:

https://egazette.nic.in/WriteReadData/2022/238239.pdf

https://egazette.nic.in/WriteReadData/2022/238242.pdf

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Press Release dated 22 Aug 2022

Investment by Foreign Portfolio Investors (FPI) in Debt – Relaxations (RBI Circular dated 07 July 2022)

RBI/2022-23/87
A.P. (DIR Series) Circular No.07

July 07, 2022

To
All Authorised Persons

Madam/Sir,

Investment by Foreign Portfolio Investors (FPI) in Debt – Relaxations

Attention of Authorised Dealer Category-I (AD Category-I) banks is invited to the paragraph 3 of the press release on “Liberalisation of Forex Flows” dated July 06, 2022 regarding relaxations in the regulatory regime under the Medium-Term Framework. A reference is also invited to:

  1. the Foreign Exchange Management (Debt Instruments) Regulations, 2019 notified vide Notification No. FEMA. 396/2019-RB dated October 17, 2019, as amended from time to time, and the relevant directions issued thereunder; and
  2. the A.P. (DIR Series) Circular No. 31 dated June 15, 2018 (hereinafter, Directions), as amended from time to time.

2. In terms of paragraphs 4(b)(i) and 4(b)(ii) of the Directions, short-term investments by an FPI in government securities (Central Government securities, including Treasury Bills and State Development Loans) and corporate bonds shall not exceed 30% of the total investment of that FPI in any category. It has been decided that investments by FPIs in government securities and corporate bonds made between July 08, 2022 and October 31, 2022 (both dates included) shall be exempted from the limit on short-term investments till maturity or sale of such investments.

3. In terms of paragraph 4(b)(ii) of the Directions, FPI investments in corporate bonds were subject to a minimum residual maturity requirement of one year. It has been decided to allow FPIs to invest in commercial papers and non-convertible debentures with an original maturity of up to one year, during the period between July 08, 2022 and October 31, 2022 (both dates included). These investments shall be exempted from the limit on short-term investments till maturity or sale of such investments.

4. AD Category – I banks may bring the contents of this circular to the notice of their constituents and customers concerned.

5. The Directions contained in this circular have been issued under sections 10(4) and 11(1) of the Foreign Exchange Management Act, 1999 (42 of 1999) and are without prejudice to permissions/approval, if any, required under any other law.

6. These Directions shall be applicable with immediate effect.

Yours faithfully,

(Dimple Bhandia)
Chief General Manager

Foreign Investment Facilitation Portal (FIF) completes 5 years since Union Cabinet decision to abolish FIPB. 853 FDI proposals disposed off in the last 5 years; FDI jumped by 39% since FIF came into being

853 FDI proposals have been disposed off through the Foreign Investment Facilitation Portal (FIF) since abolishment of Foreign Investment Promotion Board (FIPB). The proposal for abolition of FIPB was approved by the Union Cabinet in its meeting on 24th May, 2017. Subsequent to abolition of the Foreign Investment Promotion Board (FIPB), granting of government approval for foreign investment under the extant FDI Policy and FEMA Regulations was entrusted to the concerned Administrative Ministries/Departments and Department for Promotion of Industry and Internal Trade (DPIIT), Ministry of Commerce & Industry, was made the nodal Department.

The FDI proposals were, thereafter, required to be filed only on Foreign Investment Facilitation Portal (FIF Portal) at https://fifp.gov.in, which is managed by DPIIT. The proposals filed on FIF Portal are forwarded to the concerned Administrative Ministry and are also simultaneously marked to Ministry of External Affairs (MEA) and Reserve Bank of India (RBI) for comments and to Ministry of Home Affairs (MHA) for necessary security clearance, wherever required as per the FDI Policy/ FEM Regulations.

A Standard Operating Procedure (SOP) for processing of FDI proposals, including documents to be filed, through FIF Portal was framed and laid down by DPIIT on 29th June, 2017 with amendment on 09th Jan, 2020.

Since then, not only the FDI has increased so have the number of countries bringing in FDI into India.  In FY 2014-15, FDI inflow in India stood at mere USD 45.15 billion, which increased to USD 60.22 billion in 2016-17 and further to the highest ever annual FDI inflow of USD 83.57 billion reported during the FY 2021-22 despite COVID-19 pandemic and recent Russia-Ukraine conflict. During FY 2021-22 FDI has been reported from 101 countries, whereas, it was reported from 97 countries during previous financial year (2020-21).

Automated alerts through SMS and emails to concerned ministries/ departments are being used to regulate pendency of FDI proposals. Secretary, DPIIT reviews the pendency of FDI proposals across all ministries / departments on monthly basis. This has expedited the disposal of FDI proposals. Regular training sessions are also being conducted to educate ministries/departments regarding judicious and expeditious processing of FDI proposal. 

Regular round table conferences are conducted with investors and law firms alike to keep abreast of the practical issues and problems being faced at the ground level. The FDI proposal form on FIF Portal is regularly reviewed to reduce compliance burden on applicants. FAQs have been updated and placed on DPIIT website and on FIF Portal for ease of access. Hence, continuous effort is made by DPIIT to ensure that India remains an investor friendly destination.

Press Release dated 24 May 2022

Investment Incentive Agreement between the Government of the United States of America and the Government of India

The Government of India and the Government of the United States of America has signed an Investment Incentive Agreement (IIA) today at Tokyo, Japan. The IIA was signed by Shri Vinay Kwatra, Foreign Secretary, Government of India, and Mr. Scott Nathan, Chief Executive Officer, U.S. International Development Finance Corporation (DFC).

This IIA supersedes the Investment Incentive Agreement signed between the Government of India and the Government of the United States of America in the year 1997. Significant developments have taken place since the signing of the earlier IIA in 1997 including the creation of a new agency called DFC, a development finance agency of Government of USA, as a successor agency of the erstwhile Overseas Private Investment Corporation (OPIC) after the enactment of a recent legislation of USA, the BUILD Act 2018. IIA has been signed, to keep pace with the additional investment support programmes, offered by the DFC, such as debt, equity investment, investment guaranty, investment insurance or reinsurance, feasibility studies for potential projects and grants.

The Agreement is the legal requirement for DFC, to continue providing investment support in India. DFC or their predecessor agencies are active in India since 1974 and have so far provided investment support worth $5.8 billion of which $2.9 billion is still outstanding. Proposals worth $4 billion are under consideration by DFC for providing investment support in India. DFC has provided investment support in sectors that matter for development such as COVID-19 vaccine manufacturing, healthcare financing, renewable energy, SME financing, financial inclusion, infrastructure etc.

It is expected that signing of IIA would lead to enhanced Investment support provided by DFC in India, which shall further help in India’s development.

Press Release dated 23 May 2022

India gets the highest annual FDI inflow of USD 83.57 billion in FY21-22

India gets the highest annual FDI inflow of USD 83.57 billion in FY21-22


India rapidly emerges as a preferred investment destination; FDI inflows have increased 20-fold in last 20 years.

FDI equity inflows in Manufacturing rise by 76% in FY 2021-22

FDI inflows rise by 23% post-Covid

Karnataka emerges as the top FDI equity inflow recipient state in India

Top FDI equity inflows from Singapore (27%) followed by U.S.A (18%)

Computer Software and Hardware becomes the top recipient sector of FDI Equity inflow with a share of around 25%

India has recorded highest ever annual FDI inflow of USD 83.57 billion in the Financial Year 2021-22. In 2014-2015, FDI inflow in India stood at mere 45.15 USD billion as compared to the highest ever annual FDI inflow of USD 83.57 billion reported during the financial year 2021-22 overtaking last year’s FDI by USD 1.60 billion despite military operation in Ukraine and COVID-19 pandemic. India’s FDI inflows have increased 20-fold since FY03-04, when the inflows were USD 4.3 billion only.

The details of total FDI inflows reported during the last four financial years are as under:

Further, India is rapidly emerging as a preferred country for foreign investments in the manufacturing sector. FDI Equity inflow in Manufacturing Sectors have increased by 76% in FY 2021-22 (USD 21.34 billion) compared to previous FY 2020-21 (USD 12.09 billion).

The following trends in India’s Foreign Direct Investment inflow are an endorsement of its status as a preferred investment destination amongst global investors.

It may be noted that FDI inflow has increased by 23% post-Covid (March, 2020 to March 2022: USD 171.84 billion) in comparison to FDI inflow reported pre-Covid (February, 2018 to February, 2020: USD 141.10 billion) in India.

In terms of top investor countries of FDI Equity inflow, ‘Singapore’ is at the apex with 27%, followed by U.S.A (18%) and Mauritius (16%) for the FY 2021-22.‘Computer Software & Hardware’ has emerged as the top recipient sector of FDI Equity inflow during FY 2021-22 with around 25% share followed by Services Sector (12%) and Automobile Industry (12%) respectively.

Under the sector `Computer Software & Hardware’, the major recipient states of FDI Equity inflow are Karnataka (53%), Delhi (17%) and Maharashtra (17%) during FY 2021-22. Karnataka is the top recipient state with 38% share of the total FDI Equity inflow reported during the FY 2021-22 followed by Maharashtra (26%) and Delhi (14%). Majority of the equity inflow of Karnataka has been reported in the sectors `Computer Software & Hardware’ (35%), Automobile Industry (20%) and `Education’ (12%) during the FY 2021-22.

The steps taken by the Government during the last eight years have borne fruit as is evident from the ever-increasing volumes of FDI inflow being received into the country, setting new records. The Government reviews the FDI policy on an ongoing basis and makes significant changes from time to time, to ensure that India remains attractive and investor friendly destination. Government has put in place a liberal and transparent policy for FDI, wherein most of the sectors are open to FDI under the automatic route. To further liberalise and simplify FDI policy for providing Ease of doing business and attract investments, reforms have been undertaken recently across sectors such as Coal Mining, Contract Manufacturing, Digital Media, Single Brand Retail Trading, Civil Aviation, Defence, Insurance and Telecom.

Press Release dated 20 May 2022

New Definition of Micro, Small and Medium Enterprises – Clarification (Press release 18th Feb 2022)

RBI/2021-2022/161
FIDD.MSME & NFS.BC.No.16/06.02.31/2021-22

February 18, 2022

The Chairman/ Managing Director/Chief Executive Officer
All Commercial Banks
(including Small Finance Banks, Local Area Banks and Regional Rural Banks)
All Primary (Urban) Co-operative Banks/State Co-operative Banks/
District Central Co-operative Banks /All-India Financial Institutions/
All Non-Banking Financial Companies

Dear Sir/Madam,

New Definition of Micro, Small and Medium Enterprises – Clarification

Please refer to the circular FIDD.MSME & NFS.BC.No.12/06.02.31/2021-22 dated June 25, 2021 on ‘New Definition of Micro, Small and Medium Enterprises’.

2. In this connection, we inform that Government of India, vide their Gazette Notification S.O. 278(E) dated January 19, 2022, has notified amendments in the paragraph (7) sub-paragraph (3) in the notification of Government of India, Ministry of Micro, Small and Medium Enterprises number S.O. 2119 (E), dated June 26, 2020, published in the Gazette of India.

3. In view of the above amendment, paragraph 3 of the said circular would stand modified as under:

“The existing Entrepreneurs Memorandum (EM) Part II and Udyog Aadhaar Memorandum (UAMs) of the MSMEs obtained till June 30, 2020 shall remain valid till March 31, 2022.”

4. Further, it is clarified that the validity of documents obtained in terms of O.M. No.12(4)/ 2017-SME dated March 8, 2017 (RBI Circular FIDD.MSME & NFS.BC.No.10/06.02.31/2017-18 dated July 13, 2017), for classification of MSMEs upto June 30, 2020, are also valid upto March 31, 2022.

5. All other provisions of the circular remain unchanged.

Yours faithfully

(Sonali Sen Gupta)
Chief General Manager-in-Charge

RBI Cautions against unauthorised forex trading platforms (Press release 03 Feb 2022)

The Reserve Bank of India (RBI) has noticed misleading advertisements of unauthorised Electronic Trading Platforms (ETPs) offering forex trading facilities to Indian residents, including on social media platforms, search engines, Over The Top (OTT) platforms, gaming apps and the like. There have also been reports of such ETPs engaging agents who personally contact gullible people to undertake forex trading/investment schemes and entice them with promises of disproportionate/exorbitant returns. Further, there have been reports of frauds committed by such unauthorised ETPs / portals and many residents losing money through such trading / schemes.

It is clarified that resident persons can undertake forex transactions only with authorised persons and for permitted purposes, in terms of the Foreign Exchange Management Act, 1999 (FEMA). While permitted forex transactions can be executed electronically, they should be undertaken only on ETPs authorised for the purpose by the RBI or on recognised stock exchanges (National Stock Exchange of India Ltd., BSE Ltd. and Metropolitan Stock Exchange of India Ltd.) as per the terms and conditions specified by the RBI from time to time. It is also clarified that remittances for margins to overseas exchanges / overseas counterparties are not permitted under the Liberalised Remittance Scheme (LRS) framed under the FEMA.

A list of authorised persons and authorised ETPs is available on the RBI website. A set of frequently asked questions (FAQs) on forex transactions has also been placed on the website for the general guidance of the public.

The RBI cautions the public not to undertake forex transactions on unauthorised ETPs or remit/deposit money for such unauthorised transactions. Resident persons undertaking forex transactions for purposes other than those permitted under the FEMA or on ETPs not authorised by the RBI shall render themselves liable for penal action under the FEMA.

(Yogesh Dayal)     
Chief General Manager