Ans. Non-residents can make investments in India only after obtaining specific permission from the Central Government or Reserve Bank of India as may be required. Investments by non-residents are subject to the policy guidelines framed by the Government of India from time to time, in line with its industrial policy. However, investments by non-residents of Indian origin or nationality are allowed more liberally in order to give them wide investment opportunities.
Investment opportunities available to a non-resident of Indian nationality or origin are discussed under the following two broad heads:
(1) Investment with repatriation facilities; and
(2) Investments without repatriation facilities.
1. Investments with repatriation facilities. The following are the avenues of investment for a non-resident person of Indian nationality or origin whereby he can retain right of repatriation of capital invested and the profit or dividend thereon:
(a) Investment in Non-resident (External) Rupee accounts and FCNR accounts.
(b) Investment in units of Unit Trust of India, Central and State Government securities and National Plan/Savings Certificates.
(c) Portfolio Investment in shares and debentures quoted on stock exchanges in India, provided
(i) the shares/debentures are purchased through a stock exchange;
(ii) such investment by each non-resident investor does not exceed 1% of the paid-up equity capital of the company/each series of debentures; and
(iii) payment for such investment is made either by fresh remittance from abroad or out of funds held in the investor’s non-resident (external) account or FCNR account. if the non-resident investor has already acquired shares in a particular company with repatriation benefits under any other investment schemes to the full extent of or exceeding the value limit of 1% of paid-up capital of the company, he will not be eligible to purchase further shares of that company with repatriation benefits. There is a ceiling for total investment by all the non-resident investors put together in a company.
Purchase of equity shares and convertible debentures by all categories of eligible non-resident investors, viz., individuals of Indian nationality or origin and overseas companies, partnership firms, societies and other overseas corporate bodies owned by such persons to the extent of at least 60% should not exceed an overall ceiling of 5% of the total paid-up capital of the company/paid-up value of each series of convertible debentures. The limit of 5% applies to purchases of equity shares and convertible debentures both on repatriation and non-repatriation basis.
The limit of 5% can be increased to 24% if the company so resolves in a General Body meeting. That the ceiling prescribed is not exceeded is monitored by Reserve Bank of India. (d) Subscription to new issues of shares and convertible debentures of any new or existing company, provided the aggregate issue to non-residents qualifying for the facility of repatriation does not exceed 40% of the face value of the new issue. Such investment can be made only in companies raising capital for setting up new industrial/manufacturing projects or for expansion/diversification of their existing industrial/manufacturing activities.
Investment under this scheme can also be made in new or existing, companies engaged in:
(i) hospitals, including diagnostic centers,
(ii) hotels with 3, 4 or 5 star rating,
(iv) development of computer software, or
(v) oil exploration services
(e) Investment up to 100% of the new issue of equity capital or convertible debentures in priority industries.
(f) Investment up to 100% in Indian companies engaged primarily in export trading activities or in 100% of EOUs or units located in Export Processing Zones.
(g) Investment up to 100% in the new issue of equity shares/convertible debentures of companies engaged in real estate and housing development, and allied activities. Repatriation of original investment will be permitted by RBI only after a lock-in period of three years.
(h) Setting up Indian companies with 100% equity participation for carrying on Air Taxi Operations. (i) Bulk investments in sick industrial units up to 100% of the equity capital of the sick company. In all the above cases, the payment for investment should come from abroad through authorised channels or by debit to non-resident external account of the investor. In cases (c) to (i) above, Reserve Bank’s permission for investment is necessary.
2. Investment without repatriation facilities. Non-residents of Indian nationality or origin who undertake not to seek at any time repatriation of capital invested and income earned thereon are permitted to invest in shares/convertible debentures/deposits/commercial paper issues in industrial, manufacturing or trading activities except where the investment proposed to be made is of an undesirable nature. With similar undertaking investment in partnership and proprietorship concerns is also allowed. At present investment by non-residents is not allowed in units engaged in agricultural/plantation activity or real estate business.
3. Investment in immovable property. Non-resident Indian nationals can acquire immovable properties in India without prior permission from the Reserve Bank. But prior permission of the Reserve Bank is required for non-residents of Indian origin to acquire immovable properties in India. Normally, permission is granted to acquire only one immovable property in each case for residential purposes provided the Reserve Bank is satisfied about the reasonableness or the valuation of the property. The purchase price should be paid out of funds remitted from abroad or from the non-resident account of the purchaser.
The purchaser should undertake not to ask for repatriation of income from or sale proceeds of the property. In respect of properties purchased after 26th May 1993, Reserve Bank may permit repatriation of original investment made in equivalent foreign exchange provided the properties are transferred or disposed of after three years from the date of final purchase.