Ease of doing business: Uneasy reporting of FDI

The past couple of years have seen substantial reforms to further liberalize foreign direct investment (FDI) rules in India, in a bid to attract more foreign investment. While some sectors continue to have restrictions on foreign investments, by and large India has moved towards a more liberalized regime.

The Reserve Bank of India (RBI) has also overhauled the regulations governing issue and transfer of security by a person resident outside India, with the aim of simplifying foreign investment in the country. In a widely hailed step, the cap on dividends on compulsorily convertible preference shares was removed. The RBI has also permitted transfer of capital instruments held by a non-resident Indian, to a non-resident without any approval, subject to compliance with sectoral norms, applicable pricing guidelines, etc. Certain nuances with respect to pricing guidelines and their applicability on downstream investments have also been altered. The new regime eliminates several redundancies and clarifies interpretational issues that plagued the old regime, making India appear as a more attractive and foreign investment-friendly destination. A new concept of foreign portfolio investor in listed companies has also been introduced, although this has led to certain confusion especially with respect to applicable sectoral guidelines and reporting compliances in restricted sectors. However, despite such laudable efforts, the regulators seem to have gone overboard on reporting and disclosure obligations, which have curbed the enthusiasm around “ease of doing business”.

The RBI has recently issued a circular with the ostensible aim of integrating the reporting of various types of foreign investment under a single master form (SMF), as opposed to the current cumbersome mechanism of reporting across multiple platforms. It has also provided an interface for Indian entities to input data on total foreign investment in a specified format under an entity master form (EMF).

Vaibhav Kakkar is a partner at L&L Partners. Snigdhaneel Satpathy is a managing associate. The views expressed are personal and intended for general information purposes. They are not a substitute for legal advice.