FDI rules tweaked to improve ease of doing business

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The governments rule change results the Reserve Bank of India to make a greater improvement in administering all issues relating to Foreign Direct Investment (FDI). The foreign investors will experience ease in doing business in the future days. As per the latest notification, the Central Government gave the powers regarding with the administration of FDI regime to Reserve bank of India (RBI). It includes allowing the Central Bank in various rules and also gave the right to grant exceptions regarding FDI.

The rule is only applicable to foreign direct investment and not to foreign portfolio investment which involves the purchase of shares in the secondary market. The modification could cut down the processing time for FDI applications to 5-6 weeks with 3- 4 months currently. Until the last financial year, RBI acts as a sole regulator for FDI through the Foreign Exchange Management Act (FEMA). In last October, the government get rid of Fema and introduced a new law called Non-Debt Instrument (NDI) rules, this results to transferred all power including administering the FDI regime to the finance ministry. The RBI processes all FDI applications but requests for the exemption to the finance ministry. The industry also had the power to hold up the rules. The rule change means the central bank has been given powers of interpretation and also for exemption. As per this, the development assumes the significance especially with pricing norms where the companies keep looking for relaxations.

Until now, under NDI rules if an investment was not allowed then the investor was required to apply to the RBI. The central bank was forward it to the government which took the final call in the specific matter. According to Rajesh Gandhi, partner, Deloitte, RBI has the authority to allow foreign investments in certain cases where such investments are not otherwise permitted as per the NDI rules. These changes may result in a transparent and easier administration of the foreign direct investment rules.

The NDI rules with the power of legislation continue to be with the central government. Now, RBI will not be able to make any changes required to be made with the law. The central bank even had legislative powers under the FEMA. The government had introduced NDI rules to maintain consistency between various rules of the government that facilitate foreign investments. There have been some instances wherein there was a difference between FEMA rules and the guidelines provided by the central government including the Department for Promotion of Industry and Internal Trade (DPIIT).

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