Updates on overseas investments from India

After placing curbs on capital outflows from India by reducing the annual outward investments limits under the Liberalised Remittance Scheme for Indian residents (individuals) and overseas foreign direct investment by Indian companies last year, the Reserve Bank of India has now reviewed and rolled back parts of its policy in that regard. Below, we discuss these recent amendments. We hope that you will find the read informative.

After becoming somewhat successful in containing the sharp depreciation of the Indian Rupee against many major currencies including the US Dollar, the Reserve Bank of India (RBI) has now decided to partially rollback its decision to impose certain curbs on capital outflows from India on 14 August 2013.

The Reserve Bank of India had, inter alia, announced restrictions on remittances made by individuals under the Liberalised Remittance Scheme. Under the regulations prior to the current amendment of 3 June 2014, an annual remittance of USD 75,000 per individual for permissible capital and current account transactions including setting up a direct joint venture or solely owned business entity abroad was allowed. By a Circular dated 3 June 2014, this limit has now been increased to USD 125,000 per financial year from April to March per individual. All the hitherto prohibitions on deployment of these funds continue. Further, it was clarified vide Circular dated 17 July 2014 that residents could now purchase immovable property outside India using the Scheme.

Around the same time last year, the Reserve Bank has also slashed the limits of financial commitment (FC) for overseas direct investment by Indian companies from 400% to 100% of the net worth of the Indian company as per the last audited balance sheet (other than certain funds raised from sources like ADRs/GDRs or external commercial borrowings).

On 3 July 2014, the Reserve Bank also decided to restore the limit of the FC to the earlier 400%. However, any FC exceeding USD 1 (one) billion (or its equivalent) in a financial year would require prior approval of the Reserve Bank even when the total FC is within the eligible limit. All other hitherto provisions continue.

One hopes that the Reserve Bank will continue to roll back restrictions in part or whole, as the Indian economy continues to stabilise in the coming months.

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We thank Ms. Sarika Raichur, Senior Consultant for India (External) to Noerr LLP, for her valuable inputs in preparing this article. 

The information provided does not substitute legal advice in particular cases.