3.4 Timeline of India’s Gradual Path to Liberalization of OFDI

BOX 3.4 Timeline of India’s Gradual Path to Liberalization of OFDI Year Action Amount 1992 Automatic route introduced Limit for automatic approval (of which, limit for cash remittances) US$2 million (US$0.5 million)

Companies can raise capital in overseas markets via global depository receipts, American depositary receipts, or foreign currency convertible bonds 1995 Fast Track Route introduced n.a.

n.a.

Process for approvals moved to Reserve Bank of India from Commerce Ministry to get single window clearance mechanism US$4 million

Could not be invested in the stock market and not for real estate investments 1997 Non-exporter exchange earners brought under fasttrack route 1999 End of OFDI neutrality condition (that is, repatriating remittances in five years as dividends) Permitted value of OFDI under the automatic route was raised n.a.

n.a.

n.a.

Rs 1,200 million: Nepal and Bhutan US$30 million: other SAARC and Myanmar US$15 million: other countries

2000 Foreign Exchange Management Act Automatic route limit raised to

2002 Automatic route limit raised to

2003 Automatic route limit raised to Limit raised for SAARC and Myanmar (except Pakistan) n.a. US$50 million US$100 million 100% of net worth US$150 million Rs 7,000 million: Nepal and Bhutan

2004 Consolidate role of RBI Introduced the LRS with automatic route limit US$25,000 2005 Automatic route limit raised to 200% of net worth 2006 Under automatic route, allowed to disinvest without prior approval of RBI 2006 Proprietary and partnership firms with export track record allowed to invest on approval 2007 June: Automatic route limit raised to September: Automatic route limit raised to n.a.

n.a.

300% of net worth 400% of net worth (Box continues next page)

BOX 3.4 Timeline of India’s Gradual Path to Liberalization of OFDI (continued)

Year Action Amount September: Automatic route under LRS raised to US$200,000 2008 Automatic route limit raised for investment in natural resources with prior approval up to 400% of net worth

Raised borrowing limit Real estate and banking prohibited Individuals allowed to remit under the LRS Indian banks can set up branches abroad; need clearance under the Banking Regulation Act, 1949, from the Department of Banking Regulation, RBI Access to international financial markets progressively liberalized Allowed to use special purpose vehicles to finance cross-border activity 2012 Allowed to invest in Pakistan, through government approval route, and with prior RBI approval 2013 Automatic route for LRS n.a.

n.a. US$125,000 per year

n.a.

n.a.

n.a.

n.a.

US$75,000

Automatic route 400% of net worth

A resident individual may make outward direct investment in equity shares and preference shares of a JV or WOS outside India under the LRS $125,000

Eliminated ambiguity, whereby resident Indians were permitted to form a company outside India under LRS Notification No. 263/2013 n.a.

Sources: Khan 2012; Sauvant et al. 2014; World Bank data. Note: JV= joint venture; LRS = Liberalized Remittance Scheme; n.a. = not applicable; OFDI = outward foreign direct investment; RBI = Reserve Bank of India; Rs = rupees; SAARC = South Asian Association for Regional Cooperation; WOS = wholly owned subsidiary.

The Export-Import Bank also provides advisory services at the pre-investment and post investment stages, including reports on overseas investment opportunities, partner identification, and feasibility studies. The scope of the program has widened to provide comprehensive support to small and medium enterprises. The Export Credit Guarantee Corporation of India offers political risk insurance. For a comparison of the different types of promotional policies used in extraregional economies and the institutional framework for OFDI, see box 3.5.

Bangladesh, Nepal, and Bhutan Bangladesh, Nepal, and Bhutan have restrictive OFDI arrangements, and, in the latter two countries, the legislation stipulates that violation of such policies could result