(i) It has reduced the limit for Overseas Direct Investment (ODI) under
automatic route for all fresh ODI transactions, from 400% of the net
worth of an Indian Party to 100% of its net worth. These provisions
shall come into effect with immediate effect and would apply to all
fresh Overseas Direct Investment proposals on a prospective basis but
would not apply to the existing JV/WOS set up under the extant
regulations.
(ii) It has also reduced the limit for remittances made by Resident Individuals, under the Liberalised Remittance Scheme (LRS Scheme), from
USD 200,000 to USD 75,000 per financial year. Resident Individuals have,
however, now been allowed to set up Joint Venture (JV)/Wholly Owned
Subsidiary (WOS) outside India under the ODI route within the revised
LRS limit.
(iii) While current restrictions on the use of LRS for prohibited
transactions, such as, margin trading and lottery would continue, use of
LRS for acquisition of immovable property outside India directly or
indirectly will, henceforth, not be allowed.
The expressed intention behind these measures is to
moderate outflows. The RBI press release further states that entities ought to
approach the RBI for approval for any genuine requirements beyond these
limits.
financial guarantees issued by the Indian party, guarantees issued by
the AD and 50% of performance guarantees issued
by the Indian party), could it be argued that the reduced
100% limit is applicable only to equity investments made by the Indian
party in an offshore JV/WOS and not to other kinds of financial
commitments made by the Indian party?
