Curbing the RBI’s powers over investment: Desirable?

The Finance Act, 2015 (FA), has amended the Foreign Exchange Management Act, 1999 (FEMA), with effect from a date yet to be notified. The FA remodels the regulatory framework for capital account transactions, the definition of which includes investment by a non-resident in an Indian company by way of purchase or subscription of securities. The amendments denude the Reserve Bank of India (RBI) of its powers to regulate capital account transactions, other than those involving debt instruments, and vest such powers in the central government.

Currently, the Foreign Exchange Management (Permissible Capital Account Transactions) Regulations, 2000, recognize investment in India by a person resident outside India as a permissible capital account transaction. The Foreign Exchange Management (Transfer or Issue of Security by a Person Resident Outside India) Regulations, 2000 (FEMA 20), govern foreign direct investment (FDI), subject to provisions of FDI policy, as notified by the Ministry of Commerce and Industry from time to time.

The ministry’s Department of Industrial Policy and Promotion (DIPP) issues a consolidated FDI policy on an annual basis. Additionally, the RBI issues circulars and the DIPP issues press notes from time to time.

All of the above is set to change.

Amit Kumar is a partner and Ambarish is a principal associate at Shardul Amarchand Mangaldas & Co. The views expressed in this article are those of the authors and do not reflect the position of the firm.