Clarity needed on aspects of recent liberalization

Non-resident investors must steer two key, yet constantly developing features of the Indian regulatory landscape: exchange control regulations and the tax regime. While exchange control is almost embossed into the genes of every investment agreement, tax concerns affect structuring and impact returns and exit. Recent trends indicate that the government is now investor friendly and liberalizing the regulatory framework with fleeting reforms. The emerging view seems to be that investors now have greater flexibility than before to shoehorn their commercial objectives within the idiosyncrasies offered by this jurisdiction.

Recent news reports indicate that a single-window system for clearing foreign direct investments (FDI) is on the anvil to speed up the investment process. To further facilitate the process, the limit on FDI under the authority of the Foreign Investment Promotion Board (FIPB) has been increased from ₹12 billion (US$190 million) to ₹20 billion, and the Cabinet Committee on Economic Affairs has approved a further rise in the limit to ₹30 billion. Further, the government now proposes to take over from the Reserve Bank of India (RBI) regulation pertaining to foreign individuals and entities purchasing property in India.

Given that India is an exchange controlled jurisdiction, the majority of the issues in FDI in India arise as a consequence of capital account transactions. These are transactions which relate to foreign ownership of India assets and vice versa. Investments by non-residents in Indian companies are capital account transactions.

Luthra & Luthra Law Offices is a full-service law firm with offices in Delhi, Mumbai, Bangalore and Hyderabad. Sundeep Dudeja is a partner and Aditya Periwal is a managing associate at the firm. This article is intended for general informational purposes only and is not a substitute for legal advice.