Did you know that the Government of India first issued the policy for direct overseas investment in the form of guidelines that would govern it, in the year 1969? I basically described everything related to overseas investment including the extent of the participation.
As always, forms, reforms and guidelines are updated as per the current market and changes needed. Hence, the guidelines were updated in 1978 which issued more comprehensive measures and it included various provisions for the processes of approval, evaluation and monitoring of the investment by Ministry of Commerce. And yes, the guidelines kept being updated and as when required in 1986, 1992 and then in 1995 with the most liberal Indian overseas investment guideline in 1992. This guideline introduced Automatic Routing for overseas investment and cash remittances, with obvious restrictions on the amount. Under Automatic Route means direct investment of Indian abroad by contributing to subscription or capital to Memorandum of an abroad entity by purchasing shares of that abroad entity either by stock exchange, private placement or market purchase which in turn signifies long term interest in that foreign/abroad entity.
Indians can now buy directly from abroad like equities from foreign stock market, mutual funds, commodities, insurance policies and, real estate properties even foreign currencies for that matter. Yes, it enables cater to risks like currency risks and even geographical risks involved. By currency risk I mean, one can buy a dollar or a pound when he/she knows that the rupee is in danger due to global factors.
Frequently Asked Questions
You might obviously have a list of questions which you need answers to. Let me therefore quickly enlist a few FAQs for you:
How to start investing abroad?
Well, as a procedure, open an account with a provider and an account with a bank which has provisions that allow foreign remittance. You can even opt for a large bank which has provisions for global investment.
Who should invest?
Regardless of the fact if you are an individual or a corporate, as per the liberalization measure of May 3rd, 2000, you can invest. Keep in mind that the corporates who are listed either as one of the recognized stock exchange company and/or a company who has a shareholding of a minimum of 10% in an India are allowed to invest. And as for individuals, only resident individuals can invest for any permitted current transaction or capital account transaction to remit up to US $ 200000 per financial year. Current account transactions include donation, medical treatment, emigration, education, books, etc. whereas capital includes bank deposits, equity investment, etc.
Are there any activity list prohibited when it comes to foreign investment?
Yes! Real estate and banking nosiness are unauthorized for direct overseas investment. Indian banks however can set up partial or entire stake provided they get clearances under the Act of Banking regulation from the Department of Banking Operations and Development.
Is there any significance of these investments either for the country or for the investor?
Yes again! India and its host countries promote economic co-operation and hence result in transfer of skills, promotion of brand images, employment generation, access to global market, sharing R&D results, import and export of goods and services, technical know-how fee, foreign exchange earnings, etc. Overseas investment enables integration of our Indian economy with the other parts of the world and gain benefits out of it. And is hence called ‘Indian direct investment abroad’.
Do we need permissions to invest abroad?
And if yes, what are those? Yes, Indian residents need general permission to acquire securities. The general permissions can be listed as:
- On existing holding of currency shares from abroad as bonus shares
- As per the Resident Foreign currency, the out of funds held
- In case of a non-permanent resident in India, from the currency resources of abroad outside India.
Yes, investments are always good. Just as a safe measure, ensure you have researched the market well enough; invest in location where you have a rough idea of sufficient appreciation potential. Happy Investing!