A view from a neighbour

Dear Editor,

The following comment on the pros and cons of relaxed Indian overseas investment norms may be of interest to your readers.

Over the years, the Reserve Bank of India (RBI) has largely relaxed overseas investment norms applicable to an Indian party. Without a doubt, direct investments in joint ventures or wholly owned subsidiaries (JV/WOS) abroad give Indian parties a myriad of benefits. Access to wider global markets, the promotion of brand image, generation of employment and an increase in the utilization of raw materials available in India and in the host country are among a few of these benefits. The scheme for overseas investment is such that direct investments can be made in JV/WOS abroad through either the automatic route or the approval route. The rules to use these routes have been relaxed and rationalized in recent times in the following manner.

First, the increase in investment limits to 100% in 2013 and the subsequent restoration of the total financial commitment to 400% has enabled Indian entities to invest extensively overseas. Following this, there have been substantial amendments to the regulations applicable in relation to guarantees. Earlier, a promoter company, group company, sister concern or an associate company in India could give a guarantee on behalf of the JV/WOS abroad. After the issue of circular No. 96 in March 2012, the overall financial commitment of the Indian party now also includes bank guarantees given by them in addition to corporate and performance guarantees. Personal guarantees can now be issued by both direct and indirect individual promoters of the Indian party. This allows the JV/WOS abroad to invest further and expand their businesses.