FEMA norms eased to spur investment from overseas

12/11/2017 218 Economic Affairs | Financial System | View Recent Current Affairs

  •  The Reserve Bank of India (RBI) has simplified the Foreign Exchange Management (Transfer or Issue of Security by a Person Resident outside India) Regulations, by putting all the 93 amendments under one notification, a move that will significantly make it easier for foreign investors to invest in the country.
  • The Foreign Exchange Management Act (FEMA), introduced in 1999, was amended 93 times.

Important highlights of the notification:

  • Now anyone who wants to invest in India, he will know in which company he can invest, who can invest, how they can invest, how the money should come in, what the reporting is. Earlier it was in a very disjointed manner in various places.
  • The new notification combines two regulations on foreign investments — one which is popularly called investment in an Indian company or a partnership, or in a limited liability partnership, or FEMA 20, and the other — FEMA 24, which is investment in a partnership firm. Another significant change is the introduction of a late submission fee that could allow an investor to regularise any contravention due to non-reporting, by paying the fee.
  • The person/entity responsible for filing the reports provided in regulation shall be liable for payment of late submission fee, as may be decided by the Reserve Bank, in consultation with the Central government, for any delays in reporting.
  • It is going to impact in a very big manner because 60-70% of the contravention cases which RBI receives are due to delays in reporting
  • In addition, any transfer of investment from non-resident Indians to any non-residents has been brought under the automatic route, subject to reporting.

The Main Features of the FEMA:

  • It is consistent with full current account convertibility and contains provisions for progressive liberalisation of capital account transactions.
  • It is more transparent in its application as it lays down the areas requiring specific permissions of the Reserve Bank/Government of India on acquisition/holding of foreign exchange.
  • It classified the foreign exchange transactions in two categories, viz. capital account and current account transactions.
  • It provides power to the Reserve Bank for specifying, in , consultation with the central government, the classes of capital account transactions and limits to which exchange is admissible for such transactions.
  • It gives full freedom to a person resident in India, who was earlier resident outside India, to hold/own/transfer any foreign security/immovable property situated outside India and acquired when s/he was resident.
  • This act is a civil law and the contraventions of the Act provide for arrest only in exceptional cases.
  • FEMA does not apply to Indian citizen’s resident outside India.

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