Govt may put NRI share transfers on autoroute

By agencies   |   Monday, 04 July 2005, 19:30 IST
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NEW DELHI: As the government look for ways to shore up foreign investment in the economy, investment rules for overseas Indians in the economy are likely to be relaxed. This includes putting most of the share transfers by non-resident Indians (NRIs) on the automatic route and allowing overseas corporate bodies (OCBs) to change their status to that of limited companies. But such a move would not dilute the existing policy of keeping OCBs out of investing in the stock markets directly. Investments from overseas Indians — especially through the OCB route— had come under a cloud, after the stock scam of ’01. Several OCBs were found to have used ‘round tripping’ to boost prices of several stocks. The expected changes would require the permission of the regulatory bodies including the Reserve Bank of India and the Securities and Exchange Board of India to amend their relevant rules. The moves are still at a preliminary stage and would need to be fine-tuned. But they are in tune with the government’s intention to work out a policy of gradual relaxation in foreign investment rules, while ensuring that market discipline is not compromised. Under the current policy, NRIs largely invest through portfolio investment schemes. To acquire or sell shares, debentures or bonds through this scheme, NRIs have to obtain necessary permission from the RBI, and have to be routed through a designated branch of a bank. Even for sale and transfer of shares and debentures to resident Indians through private arrangements, permission has to be obtained from the RBI. Similarly, the transferee NRI would need RBI’s permission for purchase of shares. The government feels that with the liberalization of the foreign direct investment (FDI) rules, there is far less justification for continuing with the restrictions. Putting the investment under the automatic route would reduce bureaucratic interference. A company status would give the OCBs further leeway in terms of bidding for domestic companies. Currently, most NRI transfer of shares is intimated to the Foreign Investment Promotion Board. The changes would also do away with the need for such intimation and improve the attractiveness of the domestic companies.