Investments by NRIs, overseas citizens and PIOs will now be treated as domestic investment
A decision in this regard was taken by the cabinet committee on economic affairs, headed by Prime Minister Narendra Modi.
Ahead of its first anniversary next week, the National Democratic Alliance (NDA) government on Thursday undertook an overhaul of the country’s foreign direct investment (FDI) policy rules for overseas Indians.
Investments by non-resident Indians (NRIs), overseas citizens of India (OCIs) and persons of Indian origin (PIOs) will now be treated as domestic investment, the government said. They will not be allowed to repatriate the money overseas.
Effectively, the NDA has allowed companies operating in regulated sectors to increase foreign investments. This is because overseas Indians now fall outside the FDI ceilings and the space vacated by them can be filled by foreign investors. At the same time, domestic companies can attract investments from overseas Indians without violating foreign investment norms.
The underlying thinking is that this could stoke a fresh round of fund flows into the country.
In a press statement issued after the cabinet chaired by Prime Minister Narendra Modi signed off on the decision, the government said that for foreign investment purposes, the definitions of OCIs and PIOs are being merged with that of NRIs and NRI investment will be treated as domestic investment.
So far, investments by NRIs in only the aviation industry were excluded from the FDI limit of 49%; NRIs were permitted full ownership in the sector.
“The measure is expected to result in increased investments across sectors and greater inflow of foreign exchange remittance, leading to economic growth of the country,” the government statement said.
“Since the investments made under Schedule 4 (of the Foreign Exchange Management Act) are on non-repatriable basis, it needs to be clearly provided that such investments, for the purposes of FDI policy, are domestic investments,” the government statement added.
Although the impact of such a move on capital inflows cannot be gauged precisely, it is a good incentive for NRIs to invest in Indian companies, said Devraj Singh, executive director, tax and regulatory practice, at consulting firm EY.
“Since such investments will be made through rupee accounts from India, it would mean permanent FDI, as it cannot be repatriated,” he added.
Parliament in March amended the Citizenship Act to merge the PIO and OCI cards, offering benefits like a life-long visa and exemption from appearing before the local police station on every visit.
In the past one year, the government has taken a number of measures ranging from policy corrections to bold economic reforms.
The government opened rail infrastructure to 100% FDI under the automatic route, and in defence, insurance and pension sectors, the sectoral foreign investment cap was raised to 49%.
During the April-February period, FDI rose by 39% to $28.81 billion from $20.76 billion in the same year-ago period.
In other decisions on Thursday, the cabinet signed off on the revival of a closed urea unit of Fertilizer Corporation of India Ltd at Sindri, Jharkhand, with an investment of Rs.6,000 crore, and setting up of a new ammonia-urea complex at an estimated cost of Rs.4,500 crore at Namrup in Assam.
The setting up of a new unit and revival of closed units will meet growing demand for urea in Bihar, West Bengal, Jharkhand, and the Northeast, a government statement said, adding that this will also help the government save on freight subsidy for transport of urea to the eastern region, and create employment opportunities.
India presently imports a quarter of its yearly consumption of urea, the most commonly used fertilizer.
The cabinet also approved 15 operational flights of the polar satellite launch vehicle (PSLV), the Indian Space Research Organization’s workhorse rocket. The PSLV continuation programme was approved at a cost of Rs.3,090 crore to include the cost of vehicles, programme elements, programme management and launch campaign.
The 15 flights would include flights from PSLV-C36 to PSLV-C50, which would carry out the launch of satellites required for earth observation, navigation and space sciences. All the 15 flights would be completed during the period 2017-2020.
The cabinet committee on economic affairs also gave an extension till December 2017 for completion of the National Automotive Testing and R&D Infrastructure Project (NATRIP). The project will ensure that state-of-the-art automotive testing, homologation and research and development facilities are made available in India.
The project, which was due for completion in December, seeks to set up these facilities across seven locations—Ahmednagar, Silchar, Raebareli, Pune, Manesar, Chennai and Indore. NATRIP missed its completion date due to delays in land acquisition and securing official clearances.