Cash trapped

Repatriating funds from India is a highly regulated process that continues to frustrate many foreign investors. Nishant Parikh, Siddharth Sharma and Meghana Singh identify and evaluate some commonly used exit routes

Before investing in any jurisdiction, two key questions weigh heavily on investors’ minds: can the returns earned on the investment be remitted easily; and, can the principal investment be repatriated freely at the option of the investor. In India, unfortunately, the answers to these questions are not always what investors want to hear. They can also vary considerably depending on the sector in which the investment is made, the nature of the investment instrument and the jurisdiction from which it is made or through which it is structured.

Difficulties in repatriating funds from India stem from the fact that the country’s economy is not fully capital account-convertible and the regulatory regime imposes limitations on the movement of capital into and out of India. The country’s foreign investment policies are designed to encourage long-term investment and as a result, difficulties in the process of repatriating funds frustrate many investors.

Dividends and coupon

Investments into India and the repatriation of returns are primarily regulated by two pieces of legislation: the Companies Act, 1956, and the Foreign Exchange Management Act (FEMA), 1999. However, it is the plethora of rules, regulations and guidelines under each of these laws that can be overwhelming and often confusing.

Nishant Parikh is a partner at Trilegal in Mumbai. Siddharth Sharma and Meghana Singh are associates at the firm.