Liberalising Foreign Direct Investment Norms for NRIs, OCIs and PIOs : Implications

Liberalising Foreign Direct Investment Norms for NRIs, OCIs and PIOs: Implications

Question – The government of India has liberalised FDI norms for NRIs, OCIs and PIOs. Discuss how this will provide parity for all 3 categories of individuals and other implications of this move. Also provide an overview of FDI reforms in India.

A. Implications

• Government has made the decision to liberalise FDI norms for NRIs, PIOs and Overseas Citizens of India/OCI

• Aim is to increase capital flows into the country

• CCEA approved amendments to FDI policy in investment by PIOs, OCIs and NRIs

• This will give parity to PIOs and OCIs with NRIs in economy and education

• It will also lead to greater forex remittances and investment

• Any investment made by NRIs, OCIs and PIOs from rupee accounts in India will be treated as foreign investment

• Non repatriable NRI funds however, will be treated as domestic investments

• Through this move, India will channelise the funds of NRIs

• For the purpose of these norms, NRI is defined as a person residing outside India with Indian citizenship

• Therefore, investments by NRIs under FEMA’s Schedule 4

• (Transfer or Issue of Security by Persons Resident Outside India) Regulations will be adjudged to be domestic investment on par with the investment made by residents of the nation

• The decision to include OCI and PIO cardholders will align the FDI policy with the stated policy of the government

• This decision will further the economic growth and development of the country

B. Overview of FDI Reforms

• Government has initiated several reforms with respect to FDI

• Entire range of rail infrastructure was opened to 100% FDI under automatic route and sectoral cap was raised to 49% in the defence sector

• Government also reviewed FDI in construction development and provided avenues for affordable housing;100% FDI under automatic route is also permitted in the pharma sector

• FDI in insurance sector was also raised to 49%; Pension sector has been opened to the same FDI limit

Facts and Stats

• During the period October 2014 to March 2015, FDI inflow recorded an increase of 38%

• This is from USD 18.13 billion to USD 24.95 billion

• More than 50% of the FDI was received during this period

• FDI equity inflows also registered an increase of 39% from USD 11.7 billion to USD 16.24 billion