From UPSC perspective, the following things are important :
Prelims level: Foreign Exchange Management (Non-debt Instruments) Rules, 2019, FEMA
Why in the News?
The Finance Ministry has issued a notification amending the Foreign Exchange Management (Non-debt Instruments) Rules, 2019, to simplify Foreign Direct Investment (FDI) rules.
Key amendments made by the Finance Ministry:
| Details | |
| Cross-Border Share Swaps | Simplifies the process for Indian companies to engage in cross-border share swaps with foreign companies. |
| Clarity on Downstream Investments | Provides clearer guidelines on the treatment of downstream investments by OCI-owned entities on a non-repatriation basis, aligning them with NRI-owned entities. |
| FDI in White Label ATMs (WLAs) | Allows FDI in White Label ATMs to increase the geographical spread of ATMs, particularly in semi-urban and rural areas. |
| Standardization of ‘Control’ Definition | Standardizes the definition of ‘control’ to ensure consistency with other Acts and laws. |
| Harmonization of ‘Startup Company’ Definition | Aligns the definition of ‘startup company’ with the Government of India’s notification G.S.R. 127 (E) dated February 19, 2019. |
About The Foreign Exchange Management (Non-debt Instruments) Rules, 2019
- These rules govern foreign investment in India in non-debt instruments like equity shares, mutual funds, and real estate (excluding agricultural land).
- These rules, effective from October 17, 2019, were issued under FEMA, 1999 (Foreign Exchange Management Act).
It covers the following key aspects:
- FDI Regulation: Specifies guidelines for foreign direct investment (FDI) in various sectors, including sectoral caps and conditions.
- Investment Vehicles: Allows investment through entities like Alternative Investment Funds (AIFs), Real Estate Investment Trusts (REITs), and mutual funds.
- Repatriation: Provides a framework for repatriation of profits, dividends, and capital by foreign investors.
- Reporting: Mandates detailed reporting for companies receiving foreign investments.
- Sectoral Caps and Conditions: Sets sectoral limits and approval requirements for foreign investment, with some sectors requiring government approval.
- Prohibited Sectors: Prohibits foreign investment in sectors like lottery, gambling, chit funds, and agricultural land.
- Transfer of Shares: Outlines guidelines for share transfer between residents and non-residents, ensuring compliance with regulatory conditions.
PYQ:[2020] With reference to Foreign Direct Investment in India, which one of the following is considered its major characteristic? (a) It is the investment through capital instruments essentially in a listed company. (b) It is a largely non-debt creating capital flow. (c) It is the investment which involves debt-servicing. (d) It is the investment made by foreign institutional investors in the Government securities. |
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