In this update, we have discussed some of the recent important amendments under FEMA:—

1. Overseas Investment by Venture Capital Funds (VCFs)

It is clarified that Domestic Venture Capital Funds registered with SEBI, have been permitted to invest in equity and equity-linked instruments only of off-shore Venture Capital Undertakings. Accordingly, Domestic Venture Capital Funds registered with SEBI, desirous of making investments in off-shore Venture Capital Undertakings may approach SEBI for prior approval. No separate permission from Reserve Bank is necessary for such VCFs.

(A.P. (DIR Series) Circular No. 50/2006-07-RB, dt. 4-5-2007)

2. Liberalised Remittance Scheme for Resident Individuals — Enhancement of limit from US $ 50,000 to US $ 100,000

As announced in the Annual Policy Statement for the year 2007-08 (para 137), the existing limit of US $ 50,000 per financial year under the Scheme has been enhanced to US $ 100,000 per financial year (April- March). Accordingly, AD Category – I banks may allow remittance up to US $ 100,000, per financial year, for any permitted current or capital account transactions or a combination of both.

Application is to be made in the modified Application cum Declaration Form.

It is clarified that such remittances are allowed under the Scheme only in respect of permissible current or capital account transactions. All other transactions which are otherwise not permissible under FEMA and those in the nature of remittance for margins or margin calls to overseas exchanges/overseas counterparty are not allowed under the Scheme.

This restriction has been specifically placed through this circular, which was not there in earlier circulars.

This is in view of prohibition on borrowing under Notification No. FEMA 3/2000-RB dated 3rd May, 2000.

It is further clarified that banks should not extend any kind of credit facilities to resident individuals to facilitate remittances under the Scheme.

(A.P. (DIR Series) Circular No. 51/2006-07-RB, dt. 8-5-2007)

3. Booking of Forward Contracts based on past performance

At present, AD Category-I banks are permitted to allow importers and exporters to book forward contracts on the basis of a declaration of an exposure and based on past performance up to the average of the previous three financial years’ (April to March) actual import/export turnover or the previous year’s actual import/export turnover, whichever is higher, subject to specified conditions. Further, forward contracts booked in excess of 50 per cent of the eligible limit shall be on a deliverable basis and cannot be cancelled. The aggregate forward contracts booked during the year and outstanding at any point of time should not exceed the eligible limit. The eligible limits are to be computed separately for import/export transactions.

As announced in the Annual Policy Statement for the year 2007-08 (para 140), with a view to facilitate dynamic hedging of foreign exchange exposures of exporters and importers, it has been decided to further liberalise the above facility by raising the eligible limit of 50 per cent to 75 per cent. Accordingly, forward contracts booked on the basis of declaration of an exposure by importers/exporters and based on past performance in excess of 75 per cent of the eligible limit shall be on a deliverable basis and cannot be cancelled. All other conditions and reporting requirements prescribed for this facility will remain unchanged

(A.P. (DIR Series) Circular No. 52/2006-07-RB, dt. 8-5-2007)

4. Liberalisation of Overseas Investment by Mutual Funds

As announced in the Annual Policy Statement for the year 2007-08 (para 135), with a view to providing greater opportunity for investment overseas, the aggregate ceiling for overseas investment by Mutual Funds registered with SEBI, has been increased from US $ 3 billion to US $ 4 billion with immediate effect. The investments would be subject to the terms and conditions and operational guidelines as issued by SEBI. Monthly reporting requirement to the Reserve Bank will continue for statistical purpose.

(A.P. (DIR Series) Circular No. 53/2006-07-RB, dt. 8-5-2007)

5. Repatriation of maturity proceeds of FCNR (B) deposits — FEM (Deposit) Regulations, 2000

As announced in the Annual Policy Statement for the year 2007-08 [para 146 (ii)(iii)], it has been decided to allow AD Category–I banks and authorised banks to permit remittance of the maturity proceeds of FCNR (B) deposits to third parties outside India, provided the transaction is specifically authorised by the account holder and the authorised dealer is satisfied about the bonafide of the transaction.

This is a welcome amendment, which seeks to remove practical difficulties being faced by depositors.

(A.P. (DIR Series) Circular No. 57/2006-07-RB, dt. 18-5-2007)

6. FEM (Realisation, Repatriation and Surrender of Foreign Exchange) Regulations, 2000

Presently different periods, as under, have been stipulated for surrender of received/realised/unspent/unused foreign exchange from the date of receipt/realisation/purchase/acquisition/date of return of the traveller, to an authorised person:

• Foreign exchange due or accrued as remuneration for services rendered, settlement of any lawful obligation, income on assets held outside India, as inheritance, settlement or gift, within seven days from the date of its receipt, and in all other cases, within ninety days from the date of its receipt.
   

• Foreign exchange acquired or purchased for any purpose but not used it for such purpose or for any other purpose for which purchase or acquisition of foreign exchange is permissible, within a period of sixty days from the date of its acquisition or purchase.
   

• Unspent balance of foreign exchange drawn for travel purpose, within ninety days from the date of return of the traveller to India, when the unspent balance is in the form of currency notes and coins, and within one hundred eighty days from the date of return of the traveller to India when the unspent foreign exchange is in the form of travellers' cheque.

As announced in the Annual Policy Statement for the Year 2007-08 [para 146(i) (viii)], it has been decided to prescribe a uniform period for surrender of received/realised/unspent/unused foreign exchange by resident individuals. Accordingly, it will be in order for any resident individual to surrender received/realised/unspent/unused foreign exchange to an authorised person within a period of 180 days from the date of receipt/realisation/purchase/acquisition/date of return of the traveller, as the case may be. In all other cases, the regulations/directions on surrender requirement shall remain unchanged.

(A.P. (DIR Series) Circular No. 58/2006-07-RB, dt. 18-5-2007)

7. Investment by Navaratna Public Sector Undertakings (PSUs) in unincorporated entities in oil sector abroad

AD Category-I banks are aware that investment in the oil sector (i.e., for exploration and drilling for oil and natural gas, etc.) in an unincorporated entity overseas by an Indian party requires prior approval of the Reserve Bank.

Such proposals of Navaratna PSUs (status given by the Department of Public Enterprises, Ministry of Heavy Industries and Public Enterprises, Government of India) are cleared by the competent authority, depending on the amount involved, viz., by (1) Board of Directors of the respective PSU, (2) Empowered Committee of the Secretaries (ECS), and (3) Cabinet Committee on Economic Affairs (CCEA).

In view of the existing controls in place, it has now been decided to further liberalise and simplify the procedures and to allow Navaratna PSUs to invest in unincorporated entities in oil sector abroad, under the automatic route. Accordingly, AD Category-I banks may allow the remittances by Navaratna PSUs towards investment in the oil sector (i.e., for exploration and drilling for oil and natural gas, etc.) in an unincorporated entity overseas after ensuring that the proposal has been approved by the appropriate competent authority, as stated above and is duly supported by a certified copy of the Board Resolution approving such investment. The investments would be subject to the usual reporting requirements.

(A.P. (DIR Series) Circular No. 59/2006-07-RB, dt. 18-5-2007)

8. External Commercial Borrowings (ECB) — End-use and All-in-cost ceilings — Revised

A review of the ECB guidelines prescribed in the A.P. (DIR Series) Circular No. 5 /2005-06-RB, dt. 01-08-2005 has been undertaken keeping in view the current macroeconomic situation and the experience gained so far by the Reserve Bank in administering the ECB policy.

Based on the review, the ECB policy is modified as indicated below:

(a) End-use — As per the extant ECB policy, utilisation of ECB proceeds is not permitted in real estate. The term ‘real estate’ excludes development of integrated township as defined by Press Note 3 (2002 Series) dated January 4, 2002. It has now been decided to withdraw the exemption accorded to the ‘development of integrated township’ as a permissible end-use of ECB. Accordingly, utilisation of ECB proceeds is not permissible in real estate, without any exemption.

(b) All-in-cost ceilings — With the sovereign credit ratings of India enhanced to investment grade, the all-in-cost ceilings for ECB are modified as follows:

Average Maturity Period	All-in-Cost ceilings over 6 Months LIBOR*
	Existing	Revised
Three years and up to five years	200 basis points	150 basis points
More than five years	350 basis points	250 basis points

* for the respective currency of borrowing or applicable benchmark.

The above changes will apply to ECB both under the automatic route as well as approval route with immediate effect and is subject to review.

(A.P. (DIR Series) Circular No. 60/2006-07-RB, dt. 21-5-2007)

9. Payment towards Cash Calls for the purpose of oil exploration in India

AD Category–I banks are aware that agreements are signed between the Ministry of Petroleum and Natural Gas with various consortia, both inland and foreign, for the purpose of exploration of oil and natural gas in India. These oilfields are explored by one of the members of the consortium known as the ‘Operator’. The expenditure incurred by the Operator is reimbursed by the members of the consortium as per the production sharing agreement and is termed as Cash Calls. As per the extant guidelines, the payment to Operators towards Cash Calls requires prior approval of the Reserve Bank.

As announced in the Annual Policy Statement for the year 2007-08 [para 146 (i) (iv)], with a view to liberalise the procedure, it has been decided to allow AD Category-I banks to permit payment towards cash calls to the Operator for the purpose of oil exploration in India, either by credit to the foreign currency or Rupee account in India as approved by the Reserve Bank wherever applicable, or by remittance overseas, subject to the prescribed conditions and also satisfaction about the bonafide of the transaction as stipulated under section 10(5) of FEMA, 1999.

(A.P. (DIR Series) Circular No. 61/2006-07-RB, dt. 24-5-2007)

10. Opening of Escrow/Special Accounts by Non-Resident Corporates for open offers/delisting/exit offers

Presently, opening of Escrow account and Special account for transfer of shares/convertible debentures of an Indian company through open offer/delisting/exit offer in accordance with the provisions of SEBI [Substantial Acquisition of Shares and Takeovers (SAST)] Regulations, 1997 or any other applicable SEBI Regulations requires prior approval of the Reserve Bank.

As announced in the Annual Policy Statement for the year 2007-08 (para 146 (ii) (i)), with a view to provide operational flexibility to non-resident acquirers, it has been decided to permit AD Category–I banks to open Escrow account and Special account in such cases. Accordingly, AD Category–I banks are permitted to open Escrow account and Special account on behalf of non-resident Corporates, without prior approval of the Reserve Bank, for acquisition/transfer of shares/convertible debentures through open offers/delisting/exit offers, subject to the relevant SEBI (SAST) Regulations or any other applicable SEBI Regulations/provisions of the Companies Act, 1956 and to the terms and conditions specified in the annex to the circular.

(A.P. (DIR Series) Circular No. 62/2006-07-RB, dt. 24-5-2007)

11. Import of equipments by BPO Companies in India for International Call Centre

Presently, it is obligatory on the part of the AD Category-I banks through whom the remittance for imports has been made, to ensure that the importer submits the Exchange Control copy of the Bill of Entry for home consumption as evidence of import. [A.P. (DIR Series) Circular No. 106
dt. 19-6- 2003]

As announced in the Annual Policy Statement for the year 2007-08 [para 146 (i) (v)], with the objective of rationalising and simplifying the Foreign Exchange Regulations and providing greater flexibility to such transactions, it has been decided that AD Category–I banks may, henceforth, allow BPO companies in India to make remittances towards the cost of equipment to be imported and installed at their overseas sites, in connection with setting up of their International Call Centres (ICCs), without physical import taking place in India.

The remittances are subject to the conditions prescribed.

The AD Category–I banks should also obtain a certificate as evidence of import from the Chief Executive Officer (CEO) or auditor of the importer company that the goods for which remittance was made have actually been imported and installed at overseas sites.

(A.P. (DIR Series) Circular No. 63/2006-07-RB, DT. 25-5-2007)

12. Operation of NRO account by Power of Attorney Holder — FEM (Deposit) Regulations, 2000

Presently a person resident outside India may open with an AD Category–I/authorised bank, a Non-Resident Ordinary Rupee (NRO) account, jointly with residents in terms of Notification No. FEMA 5/2000-RB dated May 3, 2000 as amended from time to time.

As announced in the Annual Policy Statement for the year 2007-08 [para 146(ii) (ii)], it has been decided to extend the facility of operation of NRO account by Power of Attorney granted in favour of a resident by the non-resident individual account holder. Accordingly, the banks may allow operations on an NRO account in terms of such a Power of Attorney, provided such operations are restricted to (i) all local payments in rupees including payments for eligible investments subject to compliance with relevant regulations made by the Reserve Bank; and (ii) remittance outside India of current income in India of the non-resident individual account holder, net of applicable taxes.

The resident Power of Attorney holder is not permitted to repatriate outside India funds held in the account other than to the non-resident individual account holder nor to make payment by way of gift to a resident on behalf of the non-resident account holder or transfer funds from the account to another NRO account.

(A.P. (DIR Series) Circular No. 64/2006-07-RB, dt. 25-5-2007)

13. Remittance on winding up of companies

Presently, no person whether a resident in India or not, shall make remittance of any assets held in India by him or any other person except with the permission of the Reserve Bank. Therefore, as per the existing provisions, remittance of out of the assets of Indian companies under liquidation requires prior approval of the Reserve Bank.

As announced in the Annual Policy Statement for the year 2007-08 (para 146 (i) (vii)), as a measure of simplification of procedure, it has been decided to delegate powers to AD Category–I banks to permit remittance out of assets of Indian companies under liquidation under the provisions of the Companies Act, 1956 subject to any order issued by the court winding up the company or the official liquidator or the liquidator in case of voluntary winding up and also subject to tax compliance.

Accordingly, AD Category–I banks are now permitted to allow remittance of out of the assets of Indian companies under liquidation under the provisions of the Companies Act, 1956, subject to the conditions prescribed.

(A.P. (DIR Series) Circular No. 65/2006-07-RB, dt. 31-5-2007)

14. Risk Management and Inter-Bank Dealings — Commodity Hedging

Currently, residents in India are permitted, with prior approval of the Reserve Bank, to enter into contracts in commodity exchanges or markets outside India to hedge the price risk in a commodity, subject to certain terms and conditions. Further, companies listed on a recognised stock exchange can be permitted by selected AD Category–I banks to hedge the price risk in respect of any commodity (except gold, silver, petroleum and petroleum products) in international commodity exchanges/markets. However, hedging the price risk on domestic sale/purchase transactions in the international exchanges/markets is not permitted, even if the domestic price is linked to the international price of the commodity.

Commodity Hedging for Domestic Transactions — Select Metals

As announced in the Annual Policy Statement for the year 2007-08 (para 139), it has been decided that AD Category–I banks, which have specifically been authorised by Reserve Bank in this regard, may, henceforth, permit domestic producers/users to hedge their price risk on aluminium, copper, lead, nickel and zinc in international commodity exchanges, based on their underlying economic exposures. Hedging may be permitted up to the average of previous three financial years’ (April to March) actual purchases/sales or the previous year’s actual purchases/sales turnover, whichever is higher, of the above commodities. Further, only standard exchange traded futures and options (purchases only) may be permitted.

Commodity Hedging for Domestic Purchases — Aviation Turbine Fuel (ATF)

AD Category–I banks, which have specifically been authorised by Reserve Bank in this regard, may also permit actual users of aviation turbine fuel (ATF) to hedge their economic exposures in the international commodity exchanges based on their domestic purchases. Accordingly, if the risk profile warrants, the actual users of ATF may also use OTC contracts. AD Category–I banks should ensure that permission for hedging ATF is granted only against firm orders and the necessary documentary evidence should be retained by them.

AD Category–I banks should ensure that the entities entering into hedging activities should have Board approved policies which define the overall framework within which derivatives activities should be conducted and the risks controlled. All other conditions and guidelines contained in A.P. (DIR Series) Circular No. 03 dated July 23, 2005 should be complied with. All transactions should be routed only through a designated AD Category–I bank.

Applications from customers to undertake hedge transactions not covered under the delegated authority may continue to be forwarded to Reserve Bank by the AD Category–I banks, for approval as hitherto.

(A.P. (DIR Series) Circular No. 66/2006-07-RB, dt. 31-5-2007)

15. Overseas Direct Investment - Rationalisation of Forms

As announced in the Annual Policy for the Year 2007-08 (para 133), with a view to improving the coverage and to ensure monitoring of the flows in a dynamic environment, it has now been decided to revise the existing reporting system. As per the new reporting package, all the forms have been subsumed into one form viz., ODI, comprising of four parts:

Part I - which includes the following:

Section A – Details of the Indian Party

Section B – Details of Investment in New Project

Section C – Details of Investment in Existing Project

Section D – Funding for JV/WOS

Section E – Declaration by the Indian Party

Section F – Certificate by the Statutory Auditors of the Indian Party

Part II – Reporting of Remittances

Part III – Annual Performance Report (APR)

Part IV – Report on Closure/Disinvestment/Voluntary Liquidation/Winding up of JV/WOS.

A new system has also been introduced for reporting Closure/Disinvestment/Winding up/Voluntary Liquidation of the overseas JV/WOS under general permission (Part IV of form ODI). Reporting in the revised Form ODI will come into effect from June 1, 2007.

It is reiterated that the revised form is only a rationalisation of the reporting procedure and there is no change or dilution in the existing eligibility criteria/documentation/limits. Eventually, these reports will be received on line by Reserve Bank.

(A.P. (DIR Series) Circular No. 68/2006-07-RB, dt. 1-6-2007)

16. Data on Project Export Finance

As per para B.7 of ‘Memorandum of Instructions on Project and Service Exports’ (PEM) issued vide AP (DIR Series) Circular No. 32 dt. 28-10-2003, which, inter alia, delegated powers to Authorised Dealers/Exim Bank to accord post award approval for projects not exceeding US $ 100 million, subject to the fulfilment of the conditions stipulated therein. Proposals exceeding US $ 100 million are considered by the Working Group.

At present, consolidated data in respect of the project exports by the Indian banking system is not available at one place as the data on post-award approval is maintained by the concerned Project Approving Authority. In order to facilitate compilation of consolidated data on project export contracts/supply contracts on deferred payments on an all India basis, AD Category-I banks are advised to henceforth send a copy of post award approvals for project export contracts/supply contracts on deferred payment basis, as and when such approvals are accorded by them, to the Export-Import Bank of India, Centre-I, 21st Floor, World Trade Centre Complex, Cuffe Parade, Mumbai 400 005.

(A.P. (DIR Series) Circular No. 71/2006-07-RB, dt. 8-6-2007)

17. Investment by Mutual Funds in Overseas Securities – Liberalisation

Presently, Mutual Funds, registered with SEBI, are permitted to invest in ADRs/GDRs of Indian companies, rated debt instruments and also in the equity of overseas companies listed on a recognised stock exchange overseas.

To enable the Mutual Funds to tap a larger investible stock overseas, RBI has been decided to permit Mutual Funds to also invest in:

i) Overseas mutual funds that make nominal investments (say to the extent of 10% of net asset value) in unlisted overseas securities;

ii) Overseas exchange traded funds that invest in securities; and

iii) ADRs/GDRs of foreign companies.

(A.P. (DIR Series) Circular No. 72/2006-07-RB, dt. 8-6-2007)

18. Foreign Investments in Preference Shares—Revised Guidelines

In terms of Schedule 1 of the Notification No. FEMA 20/2000-RB dated May 3, 2000, a person resident outside India can purchase equity/preference/convertible preference shares and convertible debentures issued by an Indian company.

Government of India, Ministry of Finance vide Press Note dated April 30, 2007 (Annex), has notified the revised guidelines for foreign investment in preference shares, which have come into effect from that date:

(a) Foreign investment coming as fully convertible preference shares would be treated as part of share capital. This would be included in calculating foreign equity for purposes of sectoral caps on foreign equity, where such caps have been prescribed.

(b) Foreign investment coming as any other type of preference shares (non- convertible, optionally convertible or partially convertible) would be considered as debt and shall require conforming to ECB guidelines/ECB caps.

(c) Any foreign investment as non-convertible or optionally convertible or partially convertible preference shares as on and up to April 30, 2007 would continue to be outside the sectoral cap till their current maturity.

(d) Issue of preference shares of any type would continue to conform to the guidelines of RBI/SEBI and other statutory bodies and would be subject to all statutory requirements.

Accordingly, it is clarified that with effect from May 1, 2007, only preference shares which are fully and mandatorily convertible into equity within a specified time would be reckoned as part of share capital and eligible to be issued to persons resident outside India under the Foreign Direct Investment Scheme in terms of Regulation 5(1) of Foreign Exchange Management (Transfer and Issue of Shares by a Person Resident outside India) Regulations, 2000 notified vide Notification No. FEMA 20/2000-RB dated May 3, 2000.

Foreign investments in other types of preference shares (i.e., non-convertible, optionally convertible or partially convertible) for issue of which, funds have been received on or after May 1, 2007 would be considered as debt and shall conform to External Commercial Borrowings (ECB) guidelines/caps. Accordingly, all the norms applicable for ECBs, viz., eligible borrowers, recognised lenders, amount and maturity, end use stipulations, etc. would apply. Since these instruments would be denominated in rupees, the rupee interest rate will be based on the swap equivalent of LIBOR plus the spread as permissible for ECBs of corresponding maturity.

It is further clarified that companies which have received funds from outside India for issue of partially/optionally convertible or redeemable preference shares on or up to April 30, 2007 may issue such instruments. Further, the existing investments in such preference shares which are not fully convertible may continue till their current maturity.

RBI wishes to regulate debt flows coming into the country in the garb of FDI by circumventing the stringent regulation for debt flows.

However, Ministry of Finance vide its Press Note dated 26th June, 2007 has stated that Minsitry has received representations from various business entities that in view of the aforesaid guidelines, the business plan of entities have been adversely affected that were at an advanced stage of issuing preference shares. In order to mitigate hardships, Government has decided that in respect of institutions/corporate/companies which have taken verifiable and effective steps prior to April 30, 2007, exemption could be granted from the purview of the revised guidelines announced in the Press Note of
30-04-2007. To be eligible for such exemptions, the institutions/corporate should have taken verifiable and effective steps. "Verifiable steps" would be actions that have foot-prints in public domain and hence, verifiable with reference to these foot prints. "Effective steps" would be actions that go beyond simple intention to act and should be such that they bind the parties conclusively. Such cases would cover the following :—

a) Action under section 81(1A) of the Companies Act, 1956 should have been taken prior to 30-4-2007: or

b) Application for permission from the Government, where necessary, should have been received before 30-04-2007.

Parties claiming benefit under the above exemption should complete the process of issuing the shares and receipt of money in respect of issue of such shares by 31-07-2007.

(A.P. (DIR Series) Circular No. 73/2006-07-RB, dt. 8-6-2007)

19. Foreign Investments in Debentures — Revised Guidelines

In terms of Schedule 1 of the Notification No. FEMA 20/2000 –RB dt. 3-5-2000, a person resident outside India can purchase equity/ preference/convertible preference shares and convertible debentures issued by an Indian company.

It has been noticed that some Indian companies are raising funds under the FDI route through issue of hybrid instruments such as optionally convertible/partially convertible debentures which are intrinsically debt-like instruments. Routing of debt flows through the FDI route circumvents the framework in place for regulating debt flows into the country. It is clarified that henceforth, only instruments which are fully and mandatorily convertible into equity, within a specified time would be reckoned as part of equity under the FDI Policy and eligible to be issued to persons resident outside India under the Foreign Direct Investment Scheme in terms of Regulation 5 (1) of Foreign Exchange Management (Transfer and Issue of Shares by a Person Resident outside India) Regulations, 2000 notified vide Notification No. FEMA 20/2000-RB dated May 3, 2000.

FIIs, registered with SEBI, would be eligible to invest as hitherto in listed non-convertible debentures/bonds issued by Indian companies in terms of RBI/SEBI norms on investment in rupee debt instruments, including the ceilings prescribed from time to time.

It is further clarified that companies which have already received funds from outside India for issue of partially/optionally convertible instruments on or before June 7, 2007 may issue such instruments. Further, the existing investments in instruments which are not fully and mandatorily convertible into equity may continue till their current maturity.

(A.P. (DIR Series) Circular No. 74/2006-07-RB, dt. 8-6-2007)

20. Overseas Direct Investment — Liberalisation

As announced in the Annual Policy Statement for the Year 2007-08 (paras 132, 133 and 134), the Regulations governing overseas investments have further been liberalised as under :

1. Enhancement of limit for Overseas Direct Investment (para 132)

In terms of Regulation 6 of the Notification No. FEMA 120/RB-2004 dt. 7-7-2004, ibid, the total overseas investment of an Indian party in all its Joint Ventures (JVs) and/or Wholly Owned Subsidiaries (WOSs) abroad engaged in any bonafide business activity should not exceed 200 per cent of its net worth. In order to provide greater flexibility to Indian parties (companies incorporated in India or created under an Act of Parliament) for investments abroad, the existing limit of 200 per cent of the net worth of the Indian party has been enhanced to 300 per cent of the net worth. However, the limit applicable to registered partnership firms for overseas investment will continue to be 200 per cent of their net worth.

2. Financial commitment for overseas investment – guarantees issued by an Indian Party to or on behalf of the JV WOS (para 132)

In terms of Regulation 2(f) of the Notification ibid, ‘financial commitment’ means the amount of direct investment by way of contribution to equity, loan and 50 per cent of the amount of guarantees issued by an Indian party to or on behalf of its overseas Joint Venture Company (JV) or Wholly Owned Subsidiary (WOS). As a measure of rationalisation of the extant norms, RBI has been decided to increase the limit to 100 per cent of the amount of guarantees issued by an Indian party for determining the ‘financial commitment’ for overseas investment by an Indian party. Accordingly, ‘financial commitment’ for overseas investment by an Indian party would, henceforth, mean direct investment by way of contribution to equity, loan and the total amount of guarantees by the investing company/promoter company/group company/sister concern or associate company/partnership firm in India. The revised norms will be applicable, with immediate effect, for both new and existing investments.

By amending the meaning of ‘financial commitment’, this circular negates the effect of enhanced limit of 300 per cent of the net worth to a certain extent.

3. Portfolio Investment by Listed Indian Companies (para 134)

In terms of Regulation 6B of the Notification ibid, listed Indian companies are permitted to invest up to 25 per cent of their net worth in the equity of listed foreign companies, which are listed on a recognised stock exchange and having shareholding of at least 10 per cent in Indian companies listed on a recognised stock exchange in India and rated bonds/fixed income securities issued by overseas companies, under the portfolio investment scheme. In order to provide greater opportunities to listed Indian companies for portfolio investments, the existing limit of 25 per cent has been enhanced to 35 per cent of the net worth of the investing company as on the date of its last audited balance sheet. All other terms and conditions stipulated in Regulation 6B of the Notification shall remain unchanged.

(A.P. (DIR Series) Circular No. 75/2006-07-RB, dt. 14-6-2007)

21. Hedging of Overseas Direct Investments by Residents — Liberalisation

Presently resident entities having overseas direct investments (in equity and loan) are permitted to hedge the exchange risk arising out of such investments by entering into forward/option contracts with AD Category–I banks, subject to verification of such exposure. Such contracts must be completed by delivery or rolled over on the due date and not cancelled. (A.P. (DIR Series) Circular No. 47 dated 12-12-2003)

As announced in the Annual Policy Statement for the Year 2007-08 (para 141), with a view to provide greater flexibility to residents with overseas direct investments (in equity and loan), RBI has permitted to allow cancellation of such forward contracts. Accordingly, AD Category–I banks may allow cancellation of forward contracts entered into by residents for overseas direct investments (in equity and loan) for hedging the exchange risk. Further, 50 per cent of the cancelled contracts may be allowed to be rebooked.

(A.P. (DIR Series) Circular No. 76/2006-07-RB, dt. 19-6-2007)

22. Enhancement of the Foreign Direct Investment ceiling from 49 per cent to 74 per cent in the Telecom sector – revised guidelines

The Government, vide Press Note 5 (2005 Series) dated 3-11-2005, had notified the enhancement of Foreign Direct Investment (FDI) limits from 49 per cent to 74 per cent in certain telecom services subject to specified conditions.

The Government has on a review of the policy in this regard, decided to enhance the Foreign Direct Investment limit from 49 per cent to 74 per cent in telecom services subject to the conditions prescribed in this Press Note 3 (2007 Series).

The relevant provisions of FDI policy for ‘investment companies’, as given in Press Note 2 (2000 Series) dated 11-2-2000 issued by Department of Industrial Policy and Promotion will no longer be applicable to telecom sector.

Press Note 15 (1998 Series) and Press Note 2 (2000 series) issued by Department of Industrial Policy & Promotion stand modified to the above extent.

Press Note 5 (2005 Series) dated 3-11-2005 stands superseded by this Press Note.

[Press Note No. 3 (2007 Series)]