ODI UNDER AUTOMATIC ROUTE

ODI UNDER AUTOMATIC ROUTE


  • An Indian Party is eligible to make overseas direct investment under the automatic route. An Indian party is a company incorporated in India or a body created under an Act of Parliament or a partnership firm registered under the Indian Partnership Act 1932 or a Limited Liability Partnership (LLP)incorporated under the Limited Liability Partnership Act, 2008 and any other entity in India as may be notified by the Reserve Bank. When more than one such company, body or entity makes investment in the foreign JV/WOS, such combination will also form an “Indian Party”.
  • Following points should be kept in mind as far as Foreign Exchange Management Act (FEMA) is concerned:
  • An Indian party does not require any prior consent from RBI.
  • An Indian party is required to approach theØ AD categoryØ1 bank.
  • Investment value under ODI cannot exceed 400%* (this figure was reduced to 100%** for a while but has been restored back) of net worth as on the last audited balance sheet of the Indian Company.
  • ODI can be done by resident “individuals” as well. The only difference is that such overseas investments would be under the Liberalised Remittance Scheme (LRS) route. The limit permissible under LRS is US$ 250,000 per person per financial year.
  • The total financial commitment (“FC”) of Indian Party in all overseas JV/ WOS shall not exceed 400% of its net worth (as per the last audited Balance Sheet).
  • FC made out of balances held in the EEFC account of the Indian party or out of funds raised through ADRs/GDRs will not be taken into consideration for the purpose of the aforesaid calculation.
  • Prior approval of RBI is required if the financial commitment exceeds USD 1 Billion in a FY.
  • Indian Party shall not be on the Reserve Bank’s exporters' caution list/list of defaulters/ under investigation by the Directorate of Enforcement or any investigative agency or regulatory authority.
  • The Indian Party routes all the transactions relating to the investment in a JV/WOS through only one branch of an authorised dealer to be designated by the Indian Party.
  • For switching over to another AD, an application shall be made to RBI after obtaining an NOC from the existing AD.
  • ODI in Pakistan is allowed under the approval route. ODI in Nepal can be only in Indian Rupees. ODI in Bhutan are allowed in Indian Rupees and in freely convertible currencies.
  • Investment value need not refer merely to equity purchase; it also includes other forms of financial participation (loans is a classic example).
  • Note: *Net worth = Paid up Capital + Free reserves
  • For the purpose of reckoning net worth of an Indian party, the net worth of its holding company (which holds at least 51% stake in the Indian Party) or its subsidiary company (in which the Indian party holds at least 51% stake) may be taken into account to the extent not availed of by the holding company or the subsidiary independently and has furnished a letter of disclaimer in favour of the Indian Party.

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