The Ministry of Finance clarified that the investment by non-resident Indians (NRIs) on a non-repatriation basis in an Indian company shall not be considered for calculation of Indirect Foreign Investment.
The Government empowered under clauses (aa) and (ab) of sub-section (2) of section 46 of the Foreign Exchange Management Act, 1999 notified the Foreign Exchange Management (Non- debt Instruments) (Amendment) Rules, 2021 which seeks to amend the Foreign Exchange Management (Non-debt Instruments) Rules, 2019.
In the Foreign Exchange Management (Non-debt Instruments) Rules, 2019, under Rule 23 in sub-rule (7), in clause (i), after sub-clause (B), for the purpose of sub-clause (A), the Explanation shall be inserted, namely, “An investment made by an Indian entity which is owned and controlled by NRI(s), on a non-repatriation basis, shall not be considered for calculation of an indirect foreign investment.”
As per Rule 23(7)(i) reads indirect foreign investment” means downstream investment received by an Indian entity from, another Indian entity (IE) which has received foreign investment and (i) the IE is not owned and not controlled by resident Indian citizens or (ii) is owned or controlled by persons resident outside India, or an investment vehicle whose sponsor or manager or investment manager is not owned and not controlled by resident Indian citizens or is owned or controlled by persons resident outside India. Provided that no person resident in India other than an Indian entity can receive Indirect Foreign Investment.
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