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- Approval requirements and other norms would be simplified in a manner that would encourage ‘internationalisation’ of Indian companies.
- However, sources, privy to the developments, also said the ODI policy was expected to tighten regulations to prevent round-tripping structures, where funds are routed by Indiabased companies into a newly formed or existing overseas subsidiary and then brought back to India to circumvent regulations here.
- They said the Reserve Bank of India (RBI) and the Finance Ministry (tax department) were concerned about such structures.
- According to India Brand Equity Foundation (IBEF), “Indian firms invest in foreign shores primarily through mergers and acquisition (M&A) transactions. With rising M&A activity, companies will get direct access to newer and more extensive markets, and better technologies, which would enable them to increase their customer base and achieve a global reach.”
- Currently, the jurisdiction over ODI is mainly with the RBI, and the concerned law here is the Foreign Exchange Management Act.
- As per the current norms, if a holding company is used to make an investment, it may qualify as a core investment company/ nonbanking financial company, and therefore, not allowed to invest in nonfinancial services outside India.
- Also, if the overseas business goes bankrupt, approvals are required for depletion in value of more than 25%.
- As per Finance Ministry data, India’s ODI rose 56.1% year-on-year from $6.8 billion in 201415 to $10.6 billion in 2015-16, and further up by 39.37% to $14.8 billion in 201617.
- Top ten ODI destination countries in FY’15, FY’16 and FY’17 included Mauritius, Singapore, the U.S., the UAE and the Netherlands.
- Interestingly, this composition of ODI destination countries more or less mirrored the top sources of foreign direct investment inflows into India in the same period including Singapore, the U.S., the UAE , Netherlands and the Mauritius.
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