The amendments in the Foreign Exchange Management (Non-debt Instruments) Rules follow the budget pledge by finance minister Nirmala Sitharaman to simplify overseas investment rules.
The latest changes have aligned the provisions governing downstream investments by overseas citizens of India with those for non-residents. This, experts said, would encourage greater participation of NRIs in the country’s economy. Easier share swap rules will “facilitate global expansion of Indian companies through mergers, acquisitions, and other strategic initiatives”, the finance ministry said. The government also clarified that transfer of all shares in companies having foreign direct investment (FDI) from countries sharing land borders with India would require prior nod irrespective of the sector.
‘Move may Help Startups Garner Funds’
An explicit clause dealing with the swap of equity shares has been incorporated in the rules to allow such exchanges even in cases where government approval is required for the underlying entity. In such instances, however, swaps will be executed only with prior government approval. The latest changes also align the definitions of ‘control’ and ‘startup’ as specified under the Foreign Exchange Management (Non-debt Instruments) Rules, with those under other laws and provisions to maintain consistency in regulatory interpretation.
“The amendments have been made to harmonise certain key definitions with allied regulations, emphasise the requirement of government approval in all cases involving investment from countries sharing a land border with India and encourage FDI into India,” said Mayank Arora, director, regulatory, Nangia Andersen India.
The definition of ‘control’ has been aligned with that in the Companies Act and Sebi (Substantial Acquisition of Shares and Takeovers) Regulations. ‘Startup’ now has a broader definition as followed by the Department for the Promotion of Industry and Internal Trade (DPIIT).
This could potentially draw more investments into startups, industry experts said. The definition of equity capital has also been tweaked in sync with the latest Foreign Exchange Management (Overseas Investment) Rules, 2022. The amendments follow the latest budget announcements by finance minister Nirmala Sitharaman to simplify rules and regulations for foreign investments, the statement said.
“These amendments underscore the government’s commitment to creating a foreign-investor-friendly climate, with continued measures to simplify rules and promote ease of doing business,” the Department of Economic Affairs said in a statement.