In a bid to ease the flow of foreign funds into legitimate business activities, the government may soon ease restrictions on foreign direct investment FDI ) by joint ventures (JVs) or wholly-owned subsidiaries (WOS) of an Indian company without categorising such investments as "suspect" involving 'round tripping' of funds.The existing legal framework under FEMA does not permit FDI by an overseas JV or WOS of an Indian party without the prior approval of RBI. Similarly, there are restrictions on Indian entities to undertake overseas direct investment (ODI) in a foreign entity which already has existing FDI investment structures in India Official sources said that the changes would soon be be made in existing overseas direct investment (ODI) Regulations to ease the restrictions and put such investments (FDI and ODI) under the automatic route (without prior approval of RBI).The changes have become important in the backdrop on slowing of the Indian economy and resultant lack of investment by the corporate sector. Moreover, any additional FDI may be allowed provided such funds are not directly or indirectly from India. The HLAC in its report has also recommended exemption to overseas listed companies i.e. companies which are listed overseas in Financial Action Task Force (FATF) jurisdictions (with market capitalisation of certain specified thresholds), should also be allowed to invest in India, irrespective of its shareholding being held by persons resident in India.ODIs include investments done outside India by an Indian by the way of subscription to the memorandum of a foreign entity or purchase of existing shares of a foreign entity either by market purchase or private placement or through stock exchanges, signifying a long-term interest in the foreign entity.

Source: Economic Times November 17, 2019 17:03 UTC