Free Flow: RBI Eases Equity Issuance Norms In FDI

Free Flow: RBI Eases Equity Issuance Norms In FDI

The Reserve Bank of India (RBI) has just made it easier for the issuance of equity norms to be relaxed so that FDI allowing companies can issue shares against any kind of payables. For those who may feel that this is just perfect, there is a limitation. The relaxation has been subject to certain conditions. Firstly, the shares and debentures can only be issued under the automatic route for any foreign entity or organisation as against the funds payable by the particular firm.

Prior to this, Indian companies under the automatic route could issue shares as well as convertible debentures to those residing outside the nation against a lump sum technical know how fee as well as royalty External Commercial Borrowings (apart from import duties viewed a ECB or Trade Credit and Important payable of capital goods by SEZ units. The type of payable has now been expanded to include any other type of fund where remittance does not need any permission beforehand from either the government or the RBI.

Now for the limitations. There will be restrictions based on certain conditions such as entry route as well as pricing regulations and sectoral cap. Also important in the equation will be the compliance with applicable tax laws. Conversion to equity should also be net of the applicable taxes.

Easing FDI norms, the RBI has now made it easier to attract foreign investment for a host of projects. This has been following a review of the extant guidelines for issue of shares or convertible debentures as per under the automatic route and remittance of this does not need prior permission.

In a statement quoted by the media, RBI has said “equity shares shall be issued in accordance with the extant FDI guidelines on sectoral caps, pricing guidelines and the issue of equity shares under this provision shall be subject to tax laws as applicable to the funds payable and the conversion to equity should be net of applicable taxes.”


"Equity shares shall be issued in accordance with the extant FDI guidelines on sectoral caps, pricing guidelines and the issue of equity shares under this provision shall be subject to tax laws as applicable to the funds payable and the conversion to equity should be net of applicable taxes," the RBI was also quoted as having said.

FDI can change the state of the Indian economy and help create more growth opportunities for the country. But there are limitations as well. RBI has tried to balance concerns in formulating the latest notification. With new paths of foreign investment being sought so that India experiences a boom, these could well be the measures to ensure that.