Relaxation on Foreign Fund Flows

Last week, the Government and the Reserve Bank of India (RBI) have announced decisions that relax erstwhile policy on external commercial borrowings (ECB) as well as foreign investment in limited ways.
First, the Government has decided to relax the ECB policy to recognise the Chinese yuan as one of the permitted currencies. The overall limit under the automatic route has been increased from US$ 500 million to US$ 750 million, apart from other forms of relaxation as reported here. This move appears to permit Indian companies to place greater reliance on foreign borrowings in view of increasing domestic interest rates. It is also expected to ease the pressure on financing for sectors such as infrastructure.
Second, the Government has issued a press release allowing foreign institutional investors (FIIs) greater participation long-term corporate bonds in the infra-structure sector.
Third, the Reserve Bank of India (RBI) has allowed gifts of securities by persons resident in India to non-residents up to a limit of US$ 50,000 (enhanced from US$ 25,000), although such gifts can be made only under the approval route.

About the author

Umakanth Varottil

Umakanth Varottil is an Associate Professor at the Faculty of Law, National University of Singapore. He specializes in corporate law and governance, mergers and acquisitions and cross-border investments. Prior to his foray into academia, Umakanth was a partner at a pre-eminent law firm in India.

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