Recent amendments to FEMA (Non-Debt Instruments) Rules, 2019
Recently, the Department of Economic Affairs, Ministry of Finance, amended Foreign Exchange Management (Non-debt Instruments) Rules, 2019 (‘FEMA NDI Rules’) vide notification dated 16.08.2024. A summary of key amendments is provided below.
Share Swap
Share Swap Involving Issue of Equity Instruments by an Indian Company
Share Swap Involving Transfer of equity Instruments of an Indian Company between resident and non-resident
Prior Government approval shall be obtained for share swaps in all cases wherever Government approval is applicable i.e. in case where the sector in which the Indian company is operating is not under automatic route.
Exclusion of OCI investment for Indirect Foreign Investment
The above amendment brings investment made by OCI or by a foreign entity and owned and controlled by NRI or OCI at equal footing with investment made by NRI while calculating indirect foreign investment.
Government Approval for Foreign Portfolio Investment
Sectoral Caps for White Label ATMs
The Amendment Rules have aligned the NDI Rules for White Label ATM Operations (WLAO) with the Consolidated FDI Policy of 2020 (FDI Policy). The amended NDI rules expressly state that 100% FDI is permitted in WLAO under automatic route, mirroring the provisions of the FDI Policy.
Standardization of Definitions
The definition of ‘control’ has been standardized to align it with the definition under the Companies Act, 2013. Additionally, the definition of ‘startup company’ has been harmonized with DPIIT notification G.S.R. 127 (E), dated 19 February 2019.
Key Takeaways
The Amendment Rules represent a significant step towards aligning India’s foreign exchange regulations with global standards, fostering a more conducive environment for foreign investment.
By simplifying the regulatory framework and reducing the need for government approvals, these changes are expected to stimulate increased foreign capital inflows, promote cross-border mergers and acquisitions, and support the global expansion of Indian businesses.
Ultimately, these amendments will enhance India’s position as a competitive, transparent, and investor-friendly destination, contributing to the nation's economic growth and global competitiveness.
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